<PAGE>
As filed with the Securities and Exchange Commission on
February 23, 2000
1933 Act Registration No. 33-17619
1940 Act Registration No. 811-5349
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
____________
Form N-1A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 ( X )
Post-Effective Amendment No. 62( X )
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 ( X )
Amendment No. 64( X )
(Check appropriate box or boxes)
__________
GOLDMAN SACHS TRUST
(Exact name of registrant as specified in charter)
4900 Sears Tower
Chicago, Illinois 60606-6303
(Address of principal executive offices)
Registrant's Telephone Number,
including Area Code 312-655-4400
____________
Michael J. Richman, Esq. Copies to:
Goldman, Sachs & Co. Jeffrey A. Dalke, Esq.
85 Broad Street - 12th Floor Drinker Biddle & Reath LLP
New York, New York 10004 One Logan Square
18/th/ and Cherry Streets
(Name and address of agent for service) Philadelphia, PA 19103
It is proposed that this filing will become effective (check appropriate box)
( ) Immediately upon filing pursuant to paragraph (b)
(X) On March 1, 2000 pursuant to paragraph (b)
( ) 60 days after filing pursuant to paragraph (a)(1)
( ) On (date) pursuant to paragraph (a)(1)
( ) 75 days after filing pursuant to paragraph (a)(2)
( ) On (date) pursuant to paragraph (a)(2) of rule 485.
<PAGE>
Prospectus
Class A, B
and C Shares
March 1, 2000
GOLDMAN SACHS FIXED INCOME FUNDS
..Goldman Sachs
Adjustable Rate
Government
Fund
..Goldman Sachs Short
Duration Government Fund
..Goldman Sachs Short
Duration Tax-
Free Fund
..Goldman Sachs
Government Income Fund
..Goldman Sachs
Municipal Income Fund
..Goldman Sachs Core
Fixed Income Fund
..Goldman Sachs
Global Income Fund
..Goldman Sachs
High Yield Municipal
Fund
..Goldman Sachs
High Yield Fund
THE SECURITIES AND EXCHANGE COMMISSION
HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
AN INVESTMENT IN A FUND IS NOT A BANK
DEPOSIT AND IS NOT INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR ANY
OTHER GOVERNMENT AGENCY. AN INVESTMENT IN
A FUND INVOLVES INVESTMENT RISKS,
INCLUDING POSSIBLE LOSS OF PRINCIPAL.
[LOGO OF GOLDMAN SACHS]
<PAGE>
NOT FDIC-INSURED May Lose Value No Bank Guarantee
<PAGE>
General Investment Management Approach
Goldman Sachs Asset Management, a unit of the Investment Management Division
of Goldman, Sachs & Co. ("Goldman Sachs"), serves as investment adviser to
the Short Duration Tax-Free, Government Income, Municipal Income, Core Fixed
Income, High Yield Municipal and High Yield Funds. Goldman Sachs Funds Man-
agement, L.P. serves as investment adviser to the Adjustable Rate Government
and Short Duration Government Funds. Goldman Sachs Asset Management Interna-
tional serves as investment adviser to the Global Income Fund. Goldman Sachs
Asset Management, Goldman Sachs Funds Management, L.P., and Goldman Sachs
Asset Management International are each referred to in this Prospectus as
the "Investment Adviser."
Goldman Sachs' Fixed Income Investing Philosophy:
Active Management Within a Risk-Managed Framework
The Investment Adviser employs a disciplined, multi-step process to evaluate
potential investments:
1. Sector Allocation--The Investment Adviser assesses the relative value of
different investment sectors (such as U.S. corporate, asset-backed and mort-
gage-backed securities) to create investment strategies that meet each
Fund's objectives.
2. Security Selection--In selecting securities for each Fund, the Investment
Adviser draws on the extensive resources of Goldman Sachs, including fixed-
income research professionals.
3. Yield Curve Strategies--The Investment Adviser adjusts the term structure
of the Funds based on its expectations of changes in the shape of the yield
curve while closely controlling the overall duration of the Fund.
The Investment Adviser de-emphasizes interest rate predictions as a means of
generating incremental return. Instead, the Investment Adviser seeks to add
value through the selection of particular securities and investment sector
allocation as described above.
With every fixed-income portfolio, the Investment Adviser applies a team
approach that emphasizes risk management and capitalizes on Goldman Sachs'
extensive research capabilities.
- --------------------------------------------------------------------------------
1
<PAGE>
Each of the Funds described in this Prospectus has a target duration. A
Fund's duration approximates its price sensitivity to changes in interest
rates. Maturity measures the time until final payment is due; it takes no
account of the pattern of a security's cash flows over time. In computing
portfolio duration, a Fund will estimate the duration of obligations that
are subject to prepayment or redemption by the issuer, taking into account
the influence of interest rates on prepayments and coupon flows. This method
of computing duration is known as "option-adjusted" duration. A Fund will
not be limited as to its maximum weighted average portfolio maturity or the
maximum stated maturity with respect to individual securities unless other-
wise noted.
Each Fund also has credit rating requirements for the securities it buys. A
Fund will deem a security to have met its minimum credit rating requirement
if the security has the required rating at the time of purchase from at
least one nationally recognized statistical rating organization ("NRSRO")
even though it has been rated below the minimum rating by one or more other
NRSROs. Unrated securities may be purchased by the Funds if they are deter-
mined by the Investment Adviser to be of comparable quality. If a security
satisfies a Fund's minimum rating requirement at the time of purchase and is
subsequently downgraded below such rating, the Fund will not be required to
dispose of such security. This is so even if the downgrade causes the aver-
age credit quality of the Fund to be lower than that stated in the Prospec-
tus. Furthermore, during this period, the Investment Adviser will only buy
securities at or above the Fund's average rating requirement. If a downgrade
occurs, the Investment Adviser will consider what action, including the sale
of such security, is in the best interests of a Fund and its shareholders.
2
<PAGE>
Fund Investment Objectives and Strategies
Goldman Sachs Adjustable Rate Government Fund
FUND FACTS
- --------------------------------------------------------------------------------
Duration (under Target = Six-Month to One-Year U.S. Treasury Security
normal interest Maximum = 2 years
rate conditions):
Expected Approxi- 9-month U.S. Treasury bill
mate Interest
Rate Sensitivity:
Credit Quality: U.S. Government Securities and repurchase agreements col-
lateralized by such securities
Benchmarks: Six-Month and One-Year U.S. Treasury Security
INVESTMENT OBJECTIVE
The Fund seeks to provide a high level of current income, consistent with
low volatility of principal.
PRINCIPAL INVESTMENT STRATEGIES
The Fund invests, under normal circumstances, at least 65% of its total
assets in securities issued or guaranteed by the U.S. government, its agen-
cies, instrumentalities or sponsored enterprises ("U.S. Government Securi-
ties") that are adjustable rate mortgage pass-through securities and other
mortgage securities with periodic interest rate resets. The remainder of the
Fund's assets (up to 35%) may be invested in other U.S. Government Securi-
ties, including:
..Fixed rate mortgage pass-through securities
..Other securities representing an interest in or collateralized by adjust-
able rate and fixed rate mortgage loans ("Mortgage-Backed Securities")
..Repurchase agreements collateralized by U.S. Government Securities
Substantially all of the Fund's assets will be invested in U.S. Government
Securities. 100% of the Fund's portfolio will be invested in U.S. dollar-
denominated securities.
3
<PAGE>
Goldman Sachs Short Duration Government Fund
FUND FACTS
- --------------------------------------------------------------------------------
Duration (under Target = Two-Year U.S. Treasury Security plus or minus
normal interest 0.5 years
rate conditions): Maximum = 3 years
Expected Approxi- 2-year U.S. Treasury note
mate Interest Rate
Sensitivity:
Credit Quality: U.S. Government Securities and repurchase agreements
collateralized by such securities
Benchmark: Two-Year U.S. Treasury Security
INVESTMENT OBJECTIVE
The Fund seeks a high level of current income and secondarily, in seeking
current income, may also consider the potential for capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES
The Fund invests, under normal market conditions, at least 65% of its total
assets in U.S. Government Securities and in repurchase agreements collater-
alized by such securities. Substantially all of the Fund's assets will be
invested in U.S. Government Securities. 100% of the Fund's portfolio will be
invested in U.S. dollar-denominated securities.
4
<PAGE>
FUND INVESTMENT OBJECTIVES AND STRATEGIES
Goldman Sachs Short Duration Tax-Free Fund
FUND FACTS
- --------------------------------------------------------------------------------
Duration (under Target = Lehman Brothers Three-Year Municipal Bond Index
normal interest plus or minus 0.5 years
rate conditions): Maximum = 4 years
Expected Approxi- 3-year municipal bond
mate Interest Rate
Sensitivity:
Credit Quality: Minimum = BBB or Baa by a NRSRO at the
time of purchase, or, if unrated, deter-
mined by the Investment Adviser to be of
comparable quality
Benchmark: Lehman Brothers Three-Year Municipal Bond Index
INVESTMENT OBJECTIVE
The Fund seeks a high level of current income, consistent with relatively
low volatility of principal, that is exempt from regular federal income tax.
PRINCIPAL INVESTMENT STRATEGIES
The Fund invests, under normal conditions, at least 80% of its net assets in
fixed-income securities issued by or on behalf of states, territories and
possessions of the United States (including the District of Columbia) and
the political subdivisions, agencies and instrumentalities thereof ("Munici-
pal Securities"), the interest on which is exempt from regular federal
income tax (i.e., excluded from gross income for federal income tax purpos-
es), and is not a tax preference item under the federal alternative minimum
tax. Under normal circumstances, the Fund's investments in private activity
bonds and taxable investments will not exceed, in the aggregate, 20% of the
Fund's net assets. The interest from private activity bonds (including the
Fund's distributions of such interest) may be a preference item for purposes
of the federal alternative minimum tax. 100% of the Fund's portfolio will be
invested in U.S. dollar-denominated securities.
5
<PAGE>
Goldman Sachs Government Income Fund
FUND FACTS
- --------------------------------------------------------------------------------
Duration (under Target = Lehman Brothers Mutual Fund Government/Mortgage
normal interest Index plus or minus 1 year
rate conditions): Maximum = 6 years
Expected Approxi- 5-year U.S. Treasury note
mate Interest Rate
Sensitivity:
Credit Quality: U.S. Government Securities; non-U.S. Government Securi-
ties rated AAA or Aaa by a NRSRO at the time of purchase
or, if unrated, determined by the Investment Adviser to
be of comparable quality
Benchmark: Lehman Brothers Mutual Fund Government/Mortgage Index
INVESTMENT OBJECTIVE
The Fund seeks a high level of current income, consistent with safety of
principal.
PRINCIPAL INVESTMENT STRATEGIES
The Fund invests, under normal circumstances, at least 65% of its total
assets in U.S. Government Securities and in repurchase agreements collater-
alized by such securities. The remainder of the Fund's assets may be
invested in non-government securities such as privately issued Mortgage-
Backed Securities, asset-backed securities and corporate securities. 100% of
the Fund's portfolio will be invested in U.S. dollar-denominated securities.
6
<PAGE>
FUND INVESTMENT OBJECTIVES AND STRATEGIES
Goldman Sachs Municipal Income Fund
FUND FACTS
- --------------------------------------------------------------------------------
Duration (under Target = Lehman Brothers 15-Year Municipal Bond Index
normal interest plus or minus one year
rate conditions): Maximum = 12 years
Expected Approxi- 15-year municipal bond
mate Interest Rate
Sensitivity:
Credit Quality: Minimum = BBB/Baa at the time of purchase; Weighted
Average = AA or Aa
Securities will either be rated by a NRSRO or, if
unrated, determined by the Investment Adviser to be of
comparable quality
Benchmark: Lehman Brothers 15-Year Municipal Bond Index
INVESTMENT OBJECTIVE
The Fund seeks a high level of current income that is exempt from regular
federal income tax, consistent with preservation of capital.
PRINCIPAL INVESTMENT STRATEGIES
The Fund invests, under normal circumstances, at least 80% of its net assets
in Municipal Securities, the interest on which is exempt from regular fed-
eral income tax (i.e., excluded from gross income for federal income tax
purposes). The Fund may invest up to 100% of its net assets in private
activity bonds, the interest from which (including the Fund's distributions
of such interest) may be a preference item for purposes of the federal
alternative minimum tax. 100% of the Fund's portfolio will be invested in
U.S. dollar-denominated securities.
7
<PAGE>
Goldman Sachs Core Fixed Income Fund
FUND FACTS
- --------------------------------------------------------------------------------
Duration (under Target = Lehman Brothers Aggregate Bond Index plus or
normal interest minus one year
rate conditions): Maximum = 6 years
Expected Approxi- 5-year U.S. Treasury note
mate Interest Rate
Sensitivity:
Credit Quality: Minimum = BBB or Baa; Minimum for non-U.S. dollar denom-
inated securities = AA or Aa
Securities will either be rated by a NRSRO or, if
unrated, determined by the Investment Adviser to be of
comparable quality
Benchmark: Lehman Brothers Aggregate Bond Index
INVESTMENT OBJECTIVE
The Fund seeks a total return consisting of capital appreciation and income
that exceeds the total return of the Lehman Brothers Aggregate Bond Index
(the "Index").
PRINCIPAL INVESTMENT STRATEGIES
The Fund invests, under normal circumstances, at least 65% of its total
assets in fixed-income securities, including U.S. Government Securities,
corporate debt securities, Mortgage-Backed Securities and asset-backed secu-
rities. The Fund may also invest in custodial receipts, Municipal Securities
and convertible securities. The Fund's investments in non-U.S. dollar denom-
inated obligations will not exceed 25% of its total assets at the time of
investment, of which 10% may be invested in obligations of issuers in coun-
tries with emerging markets or economies ("emerging countries"). In pursuing
its investment objective, the Fund uses the Index as its performance bench-
mark, but the Fund will not attempt to replicate the Index. The Fund may,
therefore, invest in securities that are not included in the Index.
8
<PAGE>
FUND INVESTMENT OBJECTIVES AND STRATEGIES
Goldman Sachs Global
Income Fund
FUND FACTS
- --------------------------------------------------------------------------------
Duration (under Target = J.P. Morgan Global Government Bond Index
normal interest (hedged) plus or minus 2.5 years
rate conditions): Maximum = 7.5 years
Expected Approxi- 6-year government bond
mate Interest Rate
Sensitivity:
Credit Quality: Minimum = BBB or Baa at time of purchase; at least 50%
of total assets = AAA or Aaa
Securities will either be rated by a NRSRO or, if
unrated, determined by the Investment Adviser to be of
comparable quality
Benchmark: J.P. Morgan Global Government Bond Index (hedged)
INVESTMENT OBJECTIVE
The Fund seeks a high total return, emphasizing current income, and, to a
lesser extent, providing opportunities for capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES
The Fund invests primarily in a portfolio of high quality fixed-income secu-
rities of U.S. and foreign issuers and enters into transactions in foreign
currencies. Under normal market conditions, the Fund will:
..Have at least 30% of its total assets, after considering the effect of cur-
rency positions, denominated in U.S. dollars
..Invest in securities of issuers in at least three countries
..Seek to meet its investment objective by pursuing investment opportunities
in foreign and domestic fixed-income securities markets and by engaging in
currency transactions to seek to enhance returns and to seek to hedge its
portfolio against currency exchange rate fluctuations
The Fund may invest more than 25% of its total assets in the securities of
corporate and governmental issuers located in each of Canada, Germany, Japan
and the United Kingdom as well as in the securities of U.S. issuers. Not
more than 25% of the Fund's total assets will be invested in securities of
issuers in any other
9
<PAGE>
Goldman Sachs Global Income Fund continued
single foreign country. The Fund may also invest up to 10% of its total
assets in issuers in emerging countries.
The fixed-income securities in which the Fund may invest include:
..U.S. Government Securities and custodial receipts therefor
..Securities issued or guaranteed by a foreign government or any of its
political subdivisions, authorities, agencies, instrumentalities or by
supranational entities
..Corporate debt securities
..Certificates of deposit and bankers' acceptances issued or guaranteed by,
or time deposits maintained at, U.S. or foreign banks (and their branches
wherever located) having total assets of more than $1 billion
..Commercial paper
..Mortgage-Backed Securities and asset-backed securities
The Global Income Fund is "non-diversified" under the Investment Company Act
of 1940 (the "Act"), and may invest more of its assets in fewer issuers than
"diversified" mutual funds. Therefore, the Global Income Fund may be more
susceptible to adverse developments affecting any single issuer held in its
portfolio, and may be more susceptible to greater losses because of these
developments.
10
<PAGE>
FUND INVESTMENT OBJECTIVES AND STRATEGIES
Goldman Sachs High Yield Municipal Fund
FUND FACTS
- --------------------------------------------------------------------------------
Duration (under Target = Lehman Brothers Municipal Bond Index plus or
normal interest minus 2 years
rate conditions): Maximum = 12 years
Expected Approxi- 15-20-year municipal bond
mate Interest Rate
Sensitivity:
Credit Quality: At least 65% of total assets = BB or Ba or lower at the
time of investment or, if unrated, determined by the
Investment Adviser to be of comparable quality
Benchmarks: Lehman Brothers Municipal Bond Index and Lehman Brothers
High Yield Municipal Bond Index
INVESTMENT OBJECTIVE
The Fund seeks a high level of current income that is exempt from regular
federal income tax and may also consider the potential for capital apprecia-
tion.
PRINCIPAL INVESTMENT STRATEGIES
The Fund invests, under normal circumstances, at least 65% of its total
assets in high-yield Municipal Securities that, at the time of investment,
are non-investment grade securities. Non-investment grade securities are
securities rated BB, Ba or below by a NRSRO, or, if unrated, determined by
the Investment Adviser to be of comparable quality. Moreover, under normal
circumstances, the Fund may invest up to 35% of its total assets in invest-
ment grade fixed-income securities.
In pursuing its principal investment strategy, the Investment Adviser will
assess the relative value in the Municipal Securities market from both a
credit and yield curve perspective. Tax-exempt securities offering the high
current income sought by the Fund are ordinarily in the medium and lower
rating categories of NRSROs (BB/Ba or lower).
Under normal circumstances, the Fund invests at least 80% of its net assets
in Municipal Securities, the interest on which is exempt from regular fed-
eral income tax (i.e., excluded from gross income for federal income tax
purposes).
11
<PAGE>
Goldman Sachs High Yield Municipal Fund continued
The Fund may invest up to 100% of its net assets in private activity bonds,
the interest from which (including the Fund's distributions of such inter-
est) may be a preference item for purposes of the federal alternative mini-
mum tax. 100% of the Fund's portfolio will be invested in U.S. dollar-
denominated securities.
Recognizing that the high-yield municipal market may consist of a limited
number of attractive investment opportunities at any one time, the Invest-
ment Adviser may temporarily close the Fund to new investors in circum-
stances where it believes that a sufficient quantity of appropriate high-
yield Municipal Securities are not available in the market place. This
determination will not preclude existing shareholders from purchasing or
redeeming Fund shares.
The High Yield Municipal Fund is "non-diversified" under the Act, and may
invest more of its assets in fewer issuers than "diversified" mutual funds.
Therefore, the High Yield Municipal Fund may be more susceptible to adverse
developments affecting any single issuer held in its portfolio, and may be
more susceptible to greater losses because of these developments.
Non-investment grade fixed-income securities (commonly known as "junk
bonds") tend to offer higher yields than higher rated securities with simi-
lar maturities. Non-investment grade fixed-income securities are, however,
considered speculative and generally involve greater price volatility and
greater risk of loss of principal and interest than higher rated securities.
The Fund may purchase the securities of issuers that are in default.
12
<PAGE>
FUND INVESTMENT OBJECTIVES AND STRATEGIES
Goldman Sachs
High Yield Fund
FUND FACTS
- --------------------------------------------------------------------------------
Duration (under Target = Lehman Brothers High Yield Bond Index plus or
normal interest minus 2.5 years
rate conditions): Maximum = 7.5 years
Expected Approxi- 6-year U.S. Treasury note
mate Interest Rate
Sensitivity:
Credit Quality: At least 65% of total assets = BB or Ba or lower at the
time of investment or, if unrated, determined by the
Investment Adviser to be of comparable quality.
Benchmark: Lehman Brothers U.S. Corporate High Yield Bond Index
INVESTMENT OBJECTIVE
The Fund seeks a high level of current income and may also consider the
potential for capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES
The Fund invests, under normal circumstances, at least 65% of its total
assets in high yield, fixed-income securities that, at the time of invest-
ment, are non-investment grade securities. Non-investment grade securities
are securities rated BB, Ba or below by a NRSRO, or, if unrated, determined
by the Investment Adviser to be of comparable quality. The Fund may invest
in all types of fixed-income securities, including:
..Senior and subordinated corporate debt obligations (such as bonds, deben-
tures, notes and commercial paper)
..Convertible and non-convertible corporate debt obligations
..Loan participations
..Custodial receipts
..Municipal Securities
..Preferred stock
The Fund may invest up to 25% of its total assets in obligations of domestic
and foreign issuers which are denominated in currencies other than the U.S.
dollar and in securities of issuers located in emerging countries denomi-
nated in any currency.
13
<PAGE>
Goldman Sachs High Yield Fund continued
Under normal market conditions, the Fund may invest up to 35% of its total
assets in investment grade fixed-income securities, including U.S. Govern-
ment Securities. The Fund may also invest in common stocks, warrants, rights
and other equity securities, but will generally hold such equity investments
only when debt or preferred stock of the issuer of such equity securities is
held by the Fund.
Non-investment grade fixed-income securities (commonly known as "junk
bonds") tend to offer higher yields than higher rated securities with simi-
lar maturities. Non-investment grade fixed-income securities are, however,
considered speculative and generally involve greater price volatility and
greater risk of loss of principal and interest than higher rated securities.
The Fund may purchase the securities of issuers that are in default.
CREDIT QUALITY
For your information, set forth below is the distribution of ratings for the
portfolio securities (including commercial paper and non-convertible bonds)
held by the Fund on October 31, 1999, the last day of the Fund's fiscal
year:
<TABLE>
<CAPTION>
Percentage of
Fund's assets
---------------------------------------------
<S> <C>
AAA/Aaa 2.3%
AA/Aa 0%
A 0%
BBB/Baa 1.5%
BB/Ba 9.7%
B 79.3%
CCC/Caa 5.6%
Not rated
Comparable to A 0%
Comparable to BBB/Baa 0%
Comparable to BB/Ba or lower 0%
Comparable to CCC 1.6%
---------------------------------------------
100.0%
---------------------------------------------
</TABLE>
14
<PAGE>
[This page intentionally left blank]
15
<PAGE>
Other Investment Practices and Securities
The table below identifies some of the investment techniques that may (but are
not required to) be used by the Funds in seeking to achieve their investment
objectives. The table also highlights the differences among the Funds in their
use of these techniques and other investment practices and investment securi-
ties. Numbers in this table show allowable usage only; for actual usage, con-
sult the Funds' annual and semi-annual reports. For more information see Appen-
dix A.
10 Percent of total assets (italic type)
10 Percent of net assets (roman type)
.. No specific percentage limitation on usage; limited only by the objectives
and strategies of the Fund
<TABLE>
<CAPTION>
Adjustable Short Short
Rate Duration Duration Government
Government Government Tax-Free Income
Fund Fund Fund Fund
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Practices
Borrowings 33 1/3 33 1/3 33 1/3 33 1/3
Credit and Interest Rate Swaps* . . . .
Currency Options and Futures -- -- -- --
Cross Hedging of Currencies -- -- -- --
Currency Swaps* -- -- -- --
Financial Futures Contracts . . . .
Forward Foreign Currency Exchange
Contracts -- -- -- --
Interest Rate Floors, Caps and
Collars . . . .
Mortgage Dollar Rolls . . -- .
Mortgage Swaps* . . -- .
Options (including Options on
Futures) . . . .
Options on Foreign Currencies -- -- -- --
Repurchase Agreements . . . .
Securities Lending 33 1/3 33 1/3 33 1/3 33 1/3
Standby Commitments and Tender
Option Bonds -- -- . --
When-Issued Securities and Forward
Committments . . . .
- -----------------------------------------------------------------------------
</TABLE>
- -- Not permitted
* Limited to 15% of net assets (together with other illiquid securities) for
all structured securities which are not deemed to be liquid and all swap
transactions.
** These Funds may enter into repurchase agreements collateralized by securi-
ties issued by foreign governments.
16
<PAGE>
OTHER INVESTMENT PRACTICES AND SECURITIES
<TABLE>
<CAPTION>
Municipal Core Fixed Global High Yield
Income Income Income Municipal High Yield
Fund Fund Fund Fund Fund
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
33 1/3 33 1/3 33 1/3 33 1/3 33 1/3
. . . . .
-- . . -- .
-- . . -- .
-- . . -- .
. . . . .
-- . . -- .
. . . . .
-- . . -- --
-- . . -- .
. . . . .
-- . . -- .
. .** .** . .**
33 1/3 33 1/3 33 1/3 33 1/3 33 1/3
. -- -- . --
. . . . .
- ---------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE>
10 Percent of total assets (italic type)
10 Percent of net assets (roman type)
.. No specific percentage limitation on usage; limited only by the objectives
and strategies of the Fund
<TABLE>
<CAPTION>
Adjustable Short Short
Rate Duration Duration Government
Government Government Tax-Free Income
Fund Fund Fund Fund
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Securities
Asset-Backed Securities ./1/ ./1/ . .
Bank Obligations -- -- -- .
Convertible Securities -- -- . --
Corporate Debt Obligations and Trust
Preferred Securities -- -- . .
Emerging Country Securities -- -- -- --
Foreign Securities/2/ -- -- -- --
Loan Participations -- -- -- --
Mortgage-Backed Securities
Adjustable Rate Mortgage Loans . . -- .
Collateralized Mortgage Obligations . . -- .
Multiple Class Mortgage-Backed
Securities . . -- .
Privately Issued Mortgage-Backed
Securities -- -- -- .
Stripped Mortgage-Backed Securities . . -- .
Non-Investment Grade Fixed
Income Securities -- -- -- --
Preferred Stock, Warrants and Rights -- -- -- --
Structured Securities* . . . .
Taxable Municipal Securities -- -- . --
Tax-Free Municipal Securities -- -- 80+ .
Temporary Investments . . ./5/ .
U.S. Government Securities . . . .
- -------------------------------------------------------------------------------
</TABLE>
- -- Not permitted
* Limited to 15% of net assets (together with other illiquid securities) for
all structured securities which are not deemed to be liquid and all swap
transactions.
1 Adjustable Rate Government and Short Duration Government Funds may only
invest in asset-backed securities that are issued or guaranteed by U.S.
government agencies, instrumentalities or sponsored enterprises.
2 Includes issuers domiciled in one country and issuing securities denomi-
nated in the currency of another.
3 Of the Funds' investments in foreign securities, 10% of each Fund's total
assets in the aggregate may be invested in emerging country securities.
4 High Yield Municipal and High Yield Funds may invest up to 35% of their
respective total assets in investment grade securities under normal condi-
tions.
5 Short-Duration Tax-Free, Municipal Income and High Yield Municipal Funds
may invest no more than 20% of their net assets in taxable investments
under normal conditions.
18
<PAGE>
OTHER INVESTMENT PRACTICES AND SECURITIES
<TABLE>
<CAPTION>
Municipal Core Fixed Global High Yield
Income Income Income Municipal High Yield
Fund Fund Fund Fund Fund
- --------------------------------------------------------------
<S> <C> <C> <C> <C>
. . . . .
-- . . -- .
. . -- . .
. . . . .
-- 10/3/ 10/3/ -- 25/7/
-- 25 25 -- ./7/
-- -- -- -- .
-- . . -- .
-- . . -- .
-- . . -- .
-- . . -- .
-- . . -- .
-- -- -- 65+/4/ 65+/4/
-- -- -- -- .
. . . . .
20 . -- 20 .
80+ . -- 80+ .
./5/ . . ./5/,/6/ ./6/
. . . . .
- --------------------------------------------------------------
</TABLE>
6 High Yield Municipal and High Yield Funds may for this purpose invest in
investment grade securities without limit.
7 The High Yield Fund may invest up to 25% of its total assets in securities
not denominated in U.S. dollars and in emerging country securities denomi-
nated in any currency.
19
<PAGE>
Principal Risks of the Funds
Loss of money is a risk of investing in each Fund. An investment in a Fund is
not a deposit of any bank and is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other governmental agency. The following
summarizes important risks that apply to the Funds and may result in a loss of
your investment. None of the Funds should be relied upon as a complete invest-
ment program. There can be no assurance that a Fund will achieve its investment
objective.
<TABLE>
<CAPTION>
..Applicable
- --Not Applicable
Adjustable Short- Short-
Rate Duration Duration Government
Government Government Tax-Free Income
Fund Fund Fund Fund
- ---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest Rate . . . .
Credit/Default . . . .
Call . . . .
Extension . . . .
Derivatives . . . .
U.S. Government Securities . . . .
Market . . . .
Management . . . .
Liquidity . . . .
Non-Diversification -- -- -- --
Foreign -- -- -- --
Emerging Countries -- -- -- --
Junk Bond -- -- -- --
Tax -- -- . --
- ---------------------------------------------------------------------
</TABLE>
20
<PAGE>
PRINCIPAL RISKS OF THE FUNDS
<TABLE>
<CAPTION>
Municipal Core Fixed Global High Yield
Income Income Income Municipal High Yield
Fund Fund Fund Fund Fund
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
. . . . .
. . . . .
. . . . .
. . . . .
. . . . .
. . . . .
. . . . .
. . . . .
. . . . .
-- -- . . --
-- . . -- .
-- . . -- .
-- -- -- . .
. -- -- . --
- --------------------------------------------------------------------------------------------
</TABLE>
21
<PAGE>
All Funds:
..Interest Rate Risk--The risk that when interest rates increase, fixed-income
securities held by a Fund will decline in value. Long-term fixed-income
securities will normally have more price volatility because of this risk than
short-term securities.
..Credit/Default Risk--The risk that an issuer or guarantor of fixed-income
securities held by a Fund (which may have low credit ratings) may default on
its obligation to pay interest and repay principal. With respect to the Short
Duration Tax-Free, Municipal Income and High Yield Municipal Funds, risk of
loss from payment default may exist where Municipal Securities are backed by
foreign letters of credit or guarantees.
..Call Risk--The risk that an issuer will exercise its right to pay principal on
an obligation held by a Fund (such as a Mortgage-Backed Security) earlier than
expected. This may happen when there is a decline in interest rates. Under
these circumstances, a Fund may be unable to recoup all of its initial
investment and will also suffer from having to reinvest in lower yielding
securities.
..Extension Risk--The risk that an issuer will exercise its right to pay
principal on an obligation held by a Fund (such as a Mortgage-Backed Security)
later than expected. This may happen when there is a rise in interest rates.
Under these circumstances, the value of the obligation will decrease, and a
Fund will also suffer from the inability to invest in higher yielding
securities.
..Derivatives Risk--The risk that loss may result from a Fund's investments in
options, futures, swaps, structured securities and other derivative
investments. These instruments may be leveraged so that small changes may
produce disproportionate losses to a Fund.
..U.S. Government Securities Risk--The risk that the U.S. government will not
provide financial support to U.S. government agencies, instrumentalities or
sponsored enterprises if it is not obligated to do so by law.
..Market Risk--The risk that the value of the securities in which a Fund invests
may go up or down in response to the prospects of individual companies and/or
general economic conditions. Price changes may be temporary or last for
extended periods.
..Management Risk--The risk that a strategy used by the Investment Adviser may
fail to produce the intended results.
..Liquidity Risk--The risk that a Fund will not be able to pay redemption
proceeds within the time period stated in this Prospectus because of unusual
market conditions, an unusually high volume of redemption requests, or other
reasons. Funds that invest in non-investment grade fixed income securities or
emerging country issuers will be especially subject to the risk that during
certain periods the liquidity of particular issuers or industries, or all
securities within these investment
22
<PAGE>
PRINCIPAL RISKS OF THE FUNDS
categories, will shrink or disappear suddenly and without warning as a result
of adverse economic, market or political events, or adverse investor
perceptions whether or not accurate. The Goldman Sachs Asset Allocation
Portfolios (the "Asset Allocation Portfolios") expect to invest a significant
percentage of their assets in the Funds and other funds for which Goldman
Sachs now or in the future acts as investment adviser or underwriter.
Redemptions by an Asset Allocation Portfolio of its position in a Fund may
further increase liquidity risk and may impact a Fund's net asset value
("NAV").
Specific Funds:
..Non-Diversification Risk--The Global Income and High Yield Municipal Funds are
non-diversified, meaning that each Fund is permitted to invest more of its
assets in fewer issuers than "diversified" mutual funds. Thus, each Fund may
be more susceptible to adverse developments affecting any single issuer held
in its portfolio, and may be more susceptible to greater losses because of
these developments. In addition, the Global Income Fund may invest more than
25% of its total assets in the securities of corporate and governmental
issuers located in each of Canada, Germany, Japan and the United Kingdom, as
well as in the securities of U.S. issuers. Concentration of the Global Income
Fund's investments in such issuers will subject the Fund, to a greater extent
than if investments were less concentrated, to losses arising from adverse
developments affecting those issuers or countries.
..Foreign Risk--The Core Fixed Income, Global Income and High Yield Funds will
be subject to risks of loss with respect to their foreign investments that are
not typically associated with domestic issuers. Loss may result because of
less foreign government regulation, less public information and less economic,
political and social stability. Loss may also result from the imposition of
exchange controls, confiscations and other government restrictions. The Funds
will also be subject to the risk of negative foreign currency rate fluctua-
tions. Foreign risks will normally be greatest when a Fund invests in issuers
located in emerging countries.
..Emerging Countries Risk--The Core Fixed Income, Global Income and High Yield
Funds may invest in emerging countries. The securities markets of Asian, Latin
American, Eastern European, African and other emerging countries are less liq-
uid, are especially subject to greater price volatility, have smaller market
capitalizations, have less government regulation and are not subject to as
extensive and frequent accounting, financial and other reporting requirements
as the securities markets of more developed countries. These risks are not
normally associated with investments in more developed countries.
23
<PAGE>
.."Junk Bond" Risk--The High Yield Municipal and High Yield Funds will invest in
non-investment grade fixed-income securities (commonly known as "junk bonds")
that are considered predominantly speculative by traditional investment
standards. Non-investment grade fixed-income securities and unrated securities
of comparable credit quality are subject to the increased risk of an issuer's
inability to meet principal and interest obligations. These securities may be
subject to greater price volatility due to such factors as specific corporate
or municipal developments, interest rate sensitivity, negative perceptions of
the junk bond markets generally and less secondary market liquidity.
..Tax Risk--The Short Duration Tax-Free, Municipal Income and High Yield Munici-
pal Funds may be more adversely impacted by changes in tax rates and policies
than the other Funds. Because interest income from Municipal Securities is
normally not subject to regular federal income taxation, the attractiveness of
Municipal Securities in relation to other investment alternatives is affected
by changes in federal income tax rates applicable to, or the continuing fed-
eral income tax-exempt status of, such interest income. Any proposed or actual
changes in such rates or exempt status, therefore, can significantly affect
the demand for and supply, liquidity and marketability of Municipal Securi-
ties. This could in turn affect a Fund's ability to acquire and dispose of
Municipal Securities at desirable yield and price levels. Additionally, these
Funds would not be a suitable investment for IRAs, other tax-exempt or tax-
deferred accounts or for other investors who are not sensitive to the federal,
state or local income tax consequences of their investments.
More information about the Funds' portfolio securities and investment tech-
niques, and their associated risks, is provided in Appendix A. You should con-
sider the investment risks discussed in this section and in Appendix A. Both
are important to your investment choice.
24
<PAGE>
Fund Performance
HOW THE FUNDS HAVE PERFORMED
The bar chart and table below provide an indication of the risks of invest-
ing in a Fund by showing: (a) changes in the performance of a Fund's Class A
Shares from year to year; and (b) how the average annual returns of a Fund's
Class A, B and C Shares* compare to those of broad-based securities market
indices. The bar chart and table assume reinvestment of dividends and dis-
tributions. A Fund's past performance is not necessarily an indication of
how the Fund will perform in the future. The average annual total return
calculation reflects a maximum initial sales charge of 1.5% for Class A
Shares of Adjustable Rate Government Fund; 2.0% for Class A Shares of Short
Duration Government and Short Duration Tax-Free Funds; and 4.5% for Class A
Shares of Government Income, Municipal Income, Core Fixed Income, Global
Income, High Yield Municipal and High Yield Funds; the assumed contingent
deferred sales charge ("CDSC") for Class B Shares (2% maximum declining to
0% after three years for the Short Duration Government and Short Duration
Tax-Free Funds and 5% maximum declining to 0% after six years for the Gov-
ernment Income, Municipal Income, Core Fixed Income, Global Income, High
Yield Municipal and High Yield Funds); and the assumed CDSC for Class C
Shares (1% if redeemed within 12 months of purchase). The bar chart does not
reflect the sales loads applicable to Class A Shares. If the sales loads
were reflected, returns would be less. Performance reflects expense limita-
tions in effect. If expense limitations were not in place, a Fund's perfor-
mance would have been reduced. The High Yield Municipal Fund as of the date
of this Prospectus had less than one calendar year's performance, therefore,
no performance information is provided in this section.
* The Adjustable Rate Government Fund does not currently, but may in the
future, offer Class B and Class C Shares.
25
<PAGE>
Adjustable Rate Government Fund
TOTAL RETURN CALENDAR YEAR (CLASS A)
- --------------------------------------------------------------------------------
Best Quarter
Q2 '97 1.99%
Worst Quarter
Q4 '98 0.31%
[GRAPH]
1996 1997 1998 1999
- ------ ------ ------ ------
6.31% 6.11% 3.54% 4.73%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
For the period ended December 31, 1999 1 Year 3 Years Since Inception
-----------------------------------------------------------------------------
<S> <C> <C> <C>
Class A (Inception 5/15/95)
Including Sales Charges 3.13% 4.26% 5.01%
Six-Month U.S. Treasury Security* 4.64% 5.26% 5.40%
One-Year U.S. Treasury Security* 4.03% 5.29% 5.54%
Lehman Brothers Mutual Fund Short (1-2) U.S.
Government Index** 3.42% 5.45% 5.66%
-----------------------------------------------------------------------------
</TABLE>
* The Six-Month and One-Year U.S. Treasury Securities, as reported by Merrill
Lynch, do not reflect any fees or expenses.
** The Lehman Brothers Mutual Fund Short (1-2) U.S. Government Index, an
unmanaged index, does not reflect any fees or expenses.
26
<PAGE>
FUND PERFORMANCE
Short Duration Government Fund
TOTAL RETURN CALENDAR YEAR (CLASS A)
- --------------------------------------------------------------------------------
Best Quarter
Q3 '98 2.92%
Worst Quarter
Q4 '98 -0.22%
[GRAPH]
1998 1999
- ---- -----
5.44% 2.52%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
For the period ended December 31, 1999 1 Year Since Inception
---------------------------------------------------------------------
<S> <C> <C>
Class A (Inception 5/1/97)
Including Sales Charges 0.47% 4.01%
Two-Year U.S. Treasury Security* 1.89% 5.04%
Lehman Brothers Mutual Fund Short (1-3) U.S.
Government Index** 2.97% 5.64%
---------------------------------------------------------------------
Class B (Inception 5/1/97)
Including CDSC 0.07% 3.86%
Two-Year U.S. Treasury Security* 1.89% 5.04%
Lehman Brothers Mutual Fund Short (1-3) U.S.
Government Index** 2.97% 5.64%
---------------------------------------------------------------------
Class C (Inception 8/15/97)
Including CDSC 0.84% 3.49%
Two-Year U.S. Treasury Security* 1.89% 4.63%
Lehman Brothers Mutual Fund Short (1-3) U.S.
Government Index** 2.97% 5.31%
---------------------------------------------------------------------
</TABLE>
* The Two-Year U.S. Treasury Security, as reported by Merrill Lynch, does not
reflect any fees or expenses.
** The Lehman Brothers Mutual Fund Short (1-3) U.S. Government Index, an
unmanaged index, does not reflect any fees or expenses.
27
<PAGE>
Short Duration Tax-Free Fund
TOTAL RETURN CALENDAR YEAR (CLASS A)
- --------------------------------------------------------------------------------
Best Quarter
Q3 '98 1.54%
Worst Quarter
Q2 '99 -0.57%
[GRAPH]
1998 1999
- ------ ------
4.18% 0.83%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
For the period ended December 31, 1999 1 Year Since Inception
---------------------------------------------------------------------------
<S> <C> <C>
Class A (Inception 5/1/97)
Including Sales Charges (1.21)% 2.81%
Lehman Brothers Three-Year Municipal Bond Index* 1.97% 4.41%
---------------------------------------------------------------------------
Class B (Inception 5/1/97)
Including CDSC (1.78)% 2.57%
Lehman Brothers Three-Year Municipal Bond Index* 1.97% 4.41%
---------------------------------------------------------------------------
Class C (Inception 8/15/97)
Including CDSC (0.92)% 2.34%
Lehman Brothers Three-Year Municipal Bond Index* 1.97% 4.00%
---------------------------------------------------------------------------
</TABLE>
* The Lehman Brothers Three-Year Municipal Bond Index, an unmanaged index,
does not reflect any fees or expenses.
28
<PAGE>
FUND PERFORMANCE
Government Income Fund
TOTAL RETURN CALENDAR YEAR (CLASS A)
- --------------------------------------------------------------------------------
Best Quarter
Q2 '95 5.70%
Worst Quarter
Q1 '94 -2.42%
[GRAPH]
1994 1995 1996 1997 1998 1999
- ------ ------ ------ ------ ------ ------
- -2.06% 17.13% 3.79% 9.32% 7.65% -1.15%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
For the period ended
December 31, 1999 1 Year 5 Years Since Inception
--------------------------------------------------------------
<S> <C> <C> <C>
Class A (Inception 2/10/93)
Including Sales Charges (5.59)% 6.20% 5.29%
Lehman Brothers Mutual Fund
Government /Mortgage Index* (0.54)% 7.67% 6.06%
--------------------------------------------------------------
Class B (Inception 5/1/96)
Including CDSC (6.79)% N/A 4.23%
Lehman Brothers Mutual Fund
Government /Mortgage Index* (0.54)% N/A 6.38%
--------------------------------------------------------------
Class C (Inception 8/15/97)
Including CDSC (2.87)% N/A 3.65%
Lehman Brothers Mutual Fund
Government /Mortgage Index* (0.54)% N/A 5.34%
--------------------------------------------------------------
</TABLE>
* The Lehman Brothers Mutual Fund Government/Mortgage Index, an unmanaged
index, does not reflect any fees or expenses.
29
<PAGE>
Municipal Income Fund
TOTAL RETURN CALENDAR YEAR (CLASS A)
- --------------------------------------------------------------------------------
Best Quarter
Q1 '95 6.51%
Worst Quarter
Q1 '94 -6.18%
[GRAPH]
1994 1995 1996 1997 1998 1999
- ------ ------ ------ ------ ------ ------
- -6.09% 16.90% 4.53% 10.43% 5.56% -4.97%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
For the period ended December 31,
1999 1 Year 5 Years Since Inception
---------------------------------------------------------------------
<S> <C> <C> <C>
Class A (Inception 7/20/93)
Including Sales Charges (9.23)% 5.27% 3.80%
Lehman Brothers 15-Year Municipal
Bond Index* (2.50)% 7.62% 5.70%
---------------------------------------------------------------------
Class B (Inception 5/1/96)
Including CDSC (10.40)% N/A 2.94%
Lehman Brothers 15-Year Municipal
Bond Index* (2.50)% N/A 5.80%
---------------------------------------------------------------------
Class C (Inception 8/15/97)
Including CDSC (6.56)% N/A 1.32%
Lehman Brothers 15-Year Municipal
Bond Index* (2.50)% N/A 3.81%
---------------------------------------------------------------------
</TABLE>
* The Lehman Brothers 15-Year Municipal Bond Index, an unmanaged index, is a
total return performance benchmark for the 15-year maturity, investment-
grade tax-exempt bond market. The Index figures do not reflect any fees or
expenses.
30
<PAGE>
FUND PERFORMANCE
Core Fixed Income Fund
TOTAL RETURN CALENDAR YEAR (CLASS A)
- --------------------------------------------------------------------------------
Best Quarter
Q3 '98 3.98%
Worst Quarter
Q2 '99 -1.22%
[GRAPH]
1998 1999
- ------ ------
7.65% -1.33%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
For the period ended December 31,
1999 1 Year Since Inception
---------------------------------------------------------------
<S> <C> <C>
Class A (Inception 5/1/97)
Including Sales Charges (5.75)% 3.53%
Lehman Brothers Aggregate Bond Index* (0.82)% 6.09%
---------------------------------------------------------------
Class B (Inception 5/1/97)
Including CDSC (6.91)% 3.42%
Lehman Brothers Aggregate Bond Index* (0.82)% 6.09%
---------------------------------------------------------------
Class C (Inception 8/15/97)
Including CDSC (3.03)% 3.53%
Lehman Brothers Aggregate Bond Index* (0.82)% 5.22%
---------------------------------------------------------------
</TABLE>
* The Lehman Brothers Aggregate Bond Index represents an unmanaged diversi-
fied portfolio of fixed-income securities, including U.S. Treasuries,
investment-grade corporate bonds, and mortgage-backed and asset-backed
securities. The Index figures do not reflect any fees or expenses.
31
<PAGE>
Global Income Fund
TOTAL RETURN CALENDAR YEAR (CLASS A)
- --------------------------------------------------------------------------------
Best Quarter
Q3 '98 5.54%
Worst Quarter
Q1 '94 -4.35%
[GRAPH]
1992 1993 1994 1995 1996 1997 1998 1999
- ------ ------ ------ ------ ------ ------ ------ ------
7.47% 12.64% -5.27% 17.77% 9.40% 9.63% 10.18% -1.46%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
For the period ended December
31, 1999 1 Year 5 Years Since Inception
----------------------------------------------------------------
<S> <C> <C> <C>
Class A (Inception 8/2/91)
Including Sales Charges (5.87)% 7.93% 6.76%
J.P. Morgan Global Government
Bond Index (hedged)* 0.72% 9.75% 8.40%
----------------------------------------------------------------
Class B (Inception 5/1/96)
Including CDSC (6.90)% N/A 5.75%
J.P. Morgan Global Government
Bond Index (hedged)* 0.72% N/A 8.45%
----------------------------------------------------------------
Class C (Inception 8/15/97)
Including CDSC (2.99)% N/A 5.09%
J.P. Morgan Global Government
Bond Index (hedged)* 0.72% N/A 7.11%
----------------------------------------------------------------
</TABLE>
* The J.P. Morgan Global Government Bond Index (hedged), an unmanaged index,
does not reflect any fees or expenses.
32
<PAGE>
FUND PERFORMANCE
High Yield Fund
TOTAL RETURN CALENDAR YEAR (CLASS A)
- --------------------------------------------------------------------------------
Best Quarter
Q4 '98 5.13%
Worst Quarter
Q3 '98 -6.68%
[GRAPH]
1998 1999
- ------ ------
3.01% 4.37%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
For the period ended
December 31, 1999 1 Year Since Inception
-------------------------------------------------
<S> <C> <C>
Class A (Inception
8/1/97)
Including Sales Charges (0.30)% 2.84%
Lehman Brothers U.S.
Corporate High Yield
Bond Index* 2.39% 3.30%
-------------------------------------------------
Class B (Inception
8/1/97)
Including CDSC (1.48)% 2.78%
Lehman Brothers U.S.
Corporate High Yield
Bond Index* 2.39% 3.30%
-------------------------------------------------
Class C (Inception
8/15/97)
Including CDSC (2.67)% 4.17%
Lehman Brothers U.S.
Corporate High Yield
Bond Index* 2.39% 3.53%
-------------------------------------------------
</TABLE>
* The Lehman Brothers U.S. Corporate High Yield Bond Index is a total return
performance benchmark for fixed-income securities having a maximum quality
rating of Ba1, a minimum amount outstanding of $100 million and at least
one year to maturity. The Index is unmanaged and does not include any fees
or expenses.
33
<PAGE>
Fund Fees and Expenses (Class A, B and C Shares)
This table describes the fees and expenses that you would pay if you buy and
hold Class A, Class B or Class C Shares of a Fund.
<TABLE>
<CAPTION>
Adjustable Rate Government Fund
----------------------------------
Class A
- ---------------------------------------------------------------------------
<S> <C>
Shareholder Fees
(fees paid directly from your
investment):
Maximum Sales Charge (Load) Imposed
on Purchases 1.5%/1/
Maximum Deferred Sales Charge (Load)/2/ None/1/
Maximum Sales Charge (Load) Imposed on
Reinvested Dividends None
Redemption Fees/5/ None
Exchange Fees/5/ None
Annual Fund Operating Expenses
(expenses that are deducted from Fund
assets):/6/
Management Fees 0.40%
Distribution and Service (12b-1) Fees 0.25%
Other Expenses/9/ 0.28%
- ---------------------------------------------------------------------------
Total Fund Operating Expenses* 0.93%
- ---------------------------------------------------------------------------
</TABLE>
See page 43 for all other footnotes.
* As a result of the current waivers and expense limi-
tations, "Other Expenses" and "Total Fund Operating
Expenses" of the Fund which are actually incurred are
as set forth below. The waivers and expense limita-
tions may be terminated at any time at the option of
the Investment Adviser. If this occurs, "Other
Expenses" and "Total Fund Operating Expenses" may
increase without shareholder approval.
<TABLE>
<CAPTION>
Adjustable Rate Government Fund
---------------------------------
Class A
-------------------------------------------------------------------------
<S> <C>
Annual Fund Operating Expenses
(expenses that are deducted from Fund
assets):/6/
Management Fees 0.40%
Distribution and Service (12b-1) Fees 0.25%
Other Expenses/9/ 0.24%
-------------------------------------------------------------------------
Total Fund Operating Expenses (after
current waivers and expense
limitations) 0.89%
-------------------------------------------------------------------------
</TABLE>
34
<PAGE>
FUND FEES AND EXPENSES
<TABLE>
<CAPTION>
Short Duration
Government Fund
---------------------------
Class A Class B Class C
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Shareholder Fees
(fees paid directly from your investment):
Maximum Sales Charge (Load) Imposed on Purchases 2.0%/1/ None None
Maximum Deferred Sales Charge (Load)/2/ None/1/ 2.0%/3/ 1.0%/4/
Maximum Sales Charge (Load) Imposed on
Reinvested Dividends None None None
Redemption Fees/5/ None None None
Exchange Fees/5/ None None None
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets):/6/
Management Fees 0.50% 0.50% 0.50%
Distribution and Service (12b-1) Fees/8/ 0.25% 0.85% 1.00%
Other Expenses/9/ 0.32% 0.32% 0.32%
- --------------------------------------------------------------------------------
Total Fund Operating Expenses* 1.07% 1.67% 1.82%
- --------------------------------------------------------------------------------
</TABLE>
See page 43 for all other footnotes.
* As a result of the current waivers and expense limi-
tations, "Other Expenses" and "Total Fund Operating
Expenses" of the Fund which are actually incurred are
as set forth below. The waivers and expense limita-
tions may be terminated at any time at the option of
the Investment Adviser. If this occurs, "Other
Expenses" and "Total Fund Operating Expenses" may
increase without shareholder approval.
<TABLE>
<CAPTION>
Short Duration
Government Fund
-----------------------
Class A Class B Class C
------------------------------------------------------------------------------
<S> <C> <C> <C>
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets):/6/
Management Fees 0.50% 0.50% 0.50%
Distribution and Service (12b-1) Fees/8/ 0.25% 0.85% 1.00%
Other Expenses/9/ 0.19% 0.19% 0.19%
------------------------------------------------------------------------------
Total Fund Operating Expenses (after current waivers
and expense limitations) 0.94% 1.54% 1.69%
------------------------------------------------------------------------------
</TABLE>
35
<PAGE>
Fund Fees and Expenses continued
<TABLE>
<CAPTION>
Short Duration Tax-Free
Fund
---------------------------
Class A Class B Class C
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Shareholder Fees
(fees paid directly from your investment):
Maximum Sales Charge (Load) Imposed on Purchases 2.0%/1/ None None
Maximum Deferred Sales Charge (Load)/2/ None/1/ 2.0%/3/ 1.0%/4/
Maximum Sales Charge (Load) Imposed on
Reinvested Dividends None None None
Redemption Fees/5/ None None None
Exchange Fees/5/ None None None
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets):/6/
Management Fees/7/ 0.40% 0.40% 0.40%
Distribution and Service (12b-1) Fees/8/ 0.25% 0.85% 1.00%
Other Expenses/9/ 0.41% 0.41% 0.41%
- --------------------------------------------------------------------------------
Total Fund Operating Expenses* 1.06% 1.66% 1.81%
- --------------------------------------------------------------------------------
</TABLE>
See page 43 for all other footnotes.
* As a result of the current waivers and expense limitations,
"Other Expenses" and "Total Fund Operating Expenses" of the
Fund which are actually incurred are as set forth below.
The waivers and expense limitations may be terminated at
any time at the option of the Investment Adviser. If this
occurs, "Other Expenses" and "Total Fund Operating
Expenses" may increase without shareholder approval.
<TABLE>
<CAPTION>
Short Duration Tax-Free
Fund
-----------------------
Class A Class B Class C
------------------------------------------------------------------------------
<S> <C> <C> <C>
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets):/6/
Management Fees/7/ 0.35% 0.35% 0.35%
Distribution and Service (12b-1) Fees/8/ 0.25% 0.85% 1.00%
Other Expenses/9/ 0.19% 0.19% 0.19%
------------------------------------------------------------------------------
Total Fund Operating Expenses (after current waivers
and expense limitations) 0.79% 1.39% 1.54%
------------------------------------------------------------------------------
</TABLE>
36
<PAGE>
FUND FEES AND EXPENSES
<TABLE>
<CAPTION>
Government Income Fund
---------------------------
Class A Class B Class C
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Shareholder Fees
(fees paid directly from your investment):
Maximum Sales Charge (Load) Imposed on Purchases 4.5%/1/ None None
Maximum Deferred Sales Charge (Load)/2/ None/1/ 5.0%/3/ 1.0%/4/
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends None None None
Redemption Fees/5/ None None None
Exchange Fees/5/ None None None
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets):/6/
Management Fees/7/ 0.65% 0.65% 0.65%
Distribution and Service (12b-1) Fees 0.25% 1.00% 1.00%
Other Expenses/9/ 0.43% 0.43% 0.43%
- ------------------------------------------------------------------------------
Total Fund Operating Expenses* 1.33% 2.08% 2.08%
- ------------------------------------------------------------------------------
</TABLE>
See page 43 for all other footnotes.
* As a result of the current waivers and expense limitations,
"Other Expenses" and "Total Fund Operating Expenses" of the
Fund which are actually incurred are as set forth below.
The waivers and expense limitations may be terminated at
any time at the option of the Investment Adviser. If this
occurs, "Other Expenses" and "Total Fund Operating
Expenses" may increase without shareholder approval.
<TABLE>
<CAPTION>
Government Income Fund
-----------------------
Class A Class B Class C
------------------------------------------------------------------------------
<S> <C> <C> <C>
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets):/6/
Management Fees/7/ 0.54% 0.54% 0.54%
Distribution and Service (12b-1) Fees 0.25% 1.00% 1.00%
Other Expenses/9/ 0.19% 0.19% 0.19%
------------------------------------------------------------------------------
Total Fund Operating Expenses (after current waivers
and expense limitations) 0.98% 1.73% 1.73%
------------------------------------------------------------------------------
</TABLE>
37
<PAGE>
Fund Fees and Expenses continued
<TABLE>
<CAPTION>
Municipal Income Fund
---------------------------
Class A Class B Class C
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Shareholder Fees
(fees paid directly from your investment):
Maximum Sales Charge (Load) Imposed on Purchases 4.5%/1/ None None
Maximum Deferred Sales Charge (Load)/2/ None/1/ 5.0%/3/ 1.0%/4/
Maximum Sales Charge (Load) Imposed on
Reinvested Dividends None None None
Redemption Fees/5/ None None None
Exchange Fees/5/ None None None
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets):/6/
Management Fees/7/ 0.55% 0.55% 0.55%
Distribution and Service (12b-1) Fees 0.25% 1.00% 1.00%
Other Expenses/9/ 0.34% 0.34% 0.34%
- --------------------------------------------------------------------------------
Total Fund Operating Expenses* 1.14% 1.89% 1.89%
- --------------------------------------------------------------------------------
</TABLE>
See page 43 for all other footnotes.
* As a result of the current waivers and expense limitations,
"Other Expenses" and "Total Fund Operating Expenses" of the
Fund which are actually incurred are as set forth below.
The waivers and expense limitations may be terminated at
any time at the option of the Investment Adviser. If this
occurs, "Other Expenses" and "Total Fund Operating
Expenses" may increase without shareholder approval.
<TABLE>
<CAPTION>
Municipal Income Fund
-----------------------
Class A Class B Class C
------------------------------------------------------------------------------
<S> <C> <C> <C>
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets):/6/
Management Fees/7/ 0.50% 0.50% 0.50%
Distribution and Service (12b-1) Fees 0.25% 1.00% 1.00%
Other Expenses/9/ 0.19% 0.19% 0.19%
------------------------------------------------------------------------------
Total Fund Operating Expenses (after current waivers
and expense limitations) 0.94% 1.69% 1.69%
------------------------------------------------------------------------------
</TABLE>
38
<PAGE>
FUND FEES AND EXPENSES
<TABLE>
<CAPTION>
Core Fixed Income Fund
---------------------------
Class A Class B Class C
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Shareholder Fees
(fees paid directly from your investment):
Maximum Sales Charge (Load) Imposed on Purchases 4.5%/1/ None None
Maximum Deferred Sales Charge (Load)/2/ None/1/ 5.0%/3/ 1.0%/4/
Maximum Sales Charge (Load) Imposed on
Reinvested Dividends None None None
Redemption Fees/5/ None None None
Exchange Fees/5/ None None None
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets):/6/
Management Fees 0.40% 0.40% 0.40%
Distribution and Service (12b-1) Fees 0.25% 1.00% 1.00%
Other Expenses/9/ 0.33% 0.33% 0.33%
- --------------------------------------------------------------------------------
Total Fund Operating Expenses* 0.98% 1.73% 1.73%
- --------------------------------------------------------------------------------
</TABLE>
See page 43 for all other footnotes.
* As a result of the current expense limitations, "Other
Expenses" and "Total Fund Operating Expenses" of the Fund
which are actually incurred are as set forth below. The
expense limitations may be terminated at any time at the
option of the Investment Adviser. If this occurs, "Other
Expenses" and "Total Fund Operating Expenses" may increase
without shareholder approval.
<TABLE>
<CAPTION>
Core Fixed Income Fund
-----------------------
Class A Class B Class C
------------------------------------------------------------------------------
<S> <C> <C> <C>
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets):/6/
Management Fees 0.40% 0.40% 0.40%
Distribution and Service (12b-1) Fees 0.25% 1.00% 1.00%
Other Expenses/9/ 0.29% 0.29% 0.29%
------------------------------------------------------------------------------
Total Fund Operating Expenses (after current expense
limitations) 0.94% 1.69% 1.69%
------------------------------------------------------------------------------
</TABLE>
39
<PAGE>
Fund Fees and Expenses continued
<TABLE>
<CAPTION>
Global Income Fund
---------------------------
Class A Class B Class C
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Shareholder Fees
(fees paid directly from your investment):
Maximum Sales Charge (Load) Imposed on Purchases 4.5%/1/ None None
Maximum Deferred Sales Charge (Load)/2/ None/1/ 5.0%/3/ 1.0%/4/
Maximum Sales Charge (Load) Imposed on
Reinvested Dividends None None None
Redemption Fees/5/ None None None
Exchange Fees/5/ None None None
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets):/6/
Management Fees/7/ 0.90% 0.90% 0.90%
Distribution and Service (12b-1) Fees 0.50% 1.00% 1.00%
Other Expenses/9/ 0.32% 0.32% 0.32%
- --------------------------------------------------------------------------------
Total Fund Operating Expenses* 1.72% 2.22% 2.22%
- --------------------------------------------------------------------------------
</TABLE>
See page 43 for all other footnotes.
* As a result of the current waivers and expense limitations,
"Other Expenses" and "Total Fund Operating Expenses" of the
Fund which are actually incurred are as set forth below.
The waivers and expense limitations may be terminated at
any time at the option of the Investment Adviser. If this
occurs, "Other Expenses" and "Total Fund Operating
Expenses" may increase without shareholder approval.
<TABLE>
<CAPTION>
Global Income Fund
-----------------------
Class A Class B Class C
------------------------------------------------------------------------------
<S> <C> <C> <C>
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets):/6/
Management Fees/7/ 0.65% 0.65% 0.65%
Distribution and Service (12b-1) Fees 0.50% 1.00% 1.00%
Other Expenses/9/ 0.19% 0.19% 0.19%
------------------------------------------------------------------------------
Total Fund Operating Expenses (after current waivers
and expense limitations) 1.34% 1.84% 1.84%
------------------------------------------------------------------------------
</TABLE>
40
<PAGE>
FUND FEES AND EXPENSES
<TABLE>
<CAPTION>
High Yield Municipal
Fund
---------------------------
Class A Class B Class C
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Shareholder Fees
(fees paid directly from your investment):
Maximum Sales Charge (Load) Imposed on Purchases 4.5%/1/ None None
Maximum Deferred Sales Charge (Load)/2/ None/1/ 5.0%/3/ 1.0%/4/
Maximum Sales Charge (Load) Imposed on
Reinvested Dividends None None None
Redemption Fees/5/ None None None
Exchange Fees/5/ None None None
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets):/6/
Management Fees 0.55% 0.55% 0.55%
Distribution and Service (12b-1) Fees 0.25% 1.00% 1.00%
Other Expenses/9/ 0.59% 0.59% 0.59%
- --------------------------------------------------------------------------------
Total Fund Operating Expenses* 1.39% 2.14% 2.14%
- --------------------------------------------------------------------------------
</TABLE>
See page 43 for all other footnotes.
* As a result of the current expense limitations, the esti-
mated "Other Expenses" and "Total Fund Operating Expenses"
of the Fund which are actually incurred are as set forth
below. The expense limitations may be terminated at any
time at the option of the Investment Adviser. If this
occurs, "Other Expenses" and "Total Fund Operating
Expenses" may increase without shareholder approval.
<TABLE>
<CAPTION>
High Yield Municipal
Fund
-----------------------
Class A Class B Class C
------------------------------------------------------------------------------
<S> <C> <C> <C>
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets):/6/
Management Fees 0.55% 0.55% 0.55%
Distribution and Service (12b-1) Fees 0.25% 1.00% 1.00%
Other Expenses/9/ 0.19% 0.19% 0.19%
------------------------------------------------------------------------------
Total Fund Operating Expenses (after current expense
limitations) 0.99% 1.74% 1.74%
------------------------------------------------------------------------------
</TABLE>
41
<PAGE>
Fund Fees and Expenses continued
<TABLE>
<CAPTION>
High Yield Fund
---------------------------
Class A Class B Class C
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Shareholder Fees
(fees paid directly from your investment):
Maximum Sales Charge (Load) Imposed on Purchases 4.5%/1/ None None
Maximum Deferred Sales Charge (Load)/2/ None/1/ 5.0%/3/ 1.0%/4/
Maximum Sales Charge (Load) Imposed on
Reinvested Dividends None None None
Redemption Fees/5/ None None None
Exchange Fees/5/ None None None
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets):/6/
Management Fees 0.70% 0.70% 0.70%
Distribution and Service (12b-1) Fees 0.25% 1.00% 1.00%
Other Expenses/9/ 0.27% 0.27% 0.27%
- --------------------------------------------------------------------------------
Total Fund Operating Expenses* 1.22% 1.97% 1.97%
- --------------------------------------------------------------------------------
</TABLE>
See page 43 for all other footnotes.
* As a result of the current expense limitations, "Other
Expenses" and "Total Fund Operating Expenses" of the Fund
which are actually incurred are as set forth below. The
expense limitations may be terminated at any time at the
option of the Investment Adviser. If this occurs, "Other
Expenses" and "Total Fund Operating Expenses" may increase
without shareholder approval.
<TABLE>
<CAPTION>
High Yield Fund
-----------------------
Class A Class B Class C
------------------------------------------------------------------------------
<S> <C> <C> <C>
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets):/6/
Management Fees 0.70% 0.70% 0.70%
Distribution and Service (12b-1) Fees 0.25% 1.00% 1.00%
Other Expenses/9/ 0.21% 0.21% 0.21%
------------------------------------------------------------------------------
Total Fund Operating Expenses (after current expense
limitations) 1.16% 1.91% 1.91%
------------------------------------------------------------------------------
</TABLE>
42
<PAGE>
FUND FEES AND EXPENSES
/1/The maximum sales charge is a percentage of the offering price. Except
with respect to direct purchases of the Adjustable Rate Government Fund, a
CDSC of 1% is imposed on certain redemptions (within 18 months of pur-
chase) of Class A Shares sold without an initial sales charge as part of
an investment of $1 million or more ($500,000 in the case of the Short
Duration Government and Short Duration Tax-Free Funds).
/2/The maximum CDSC is a percentage of the lesser of the NAV at the time of
redemption or the NAV when the shares were originally purchased.
/3/With the exception of the Short Duration Government Fund and the Short
Duration Tax-Free Fund, a CDSC is imposed upon Class B Shares redeemed
within six years of purchase at a rate of 5% in the first year, declining
to 1% in the sixth year, and eliminated thereafter. With respect to the
Short Duration Government Fund and Short Duration Tax-Free Fund, a CDSC is
imposed on shares redeemed within three years of purchase at a rate of
2.0% in the first year, declining to 1% in the third year, and eliminated
thereafter.
/4/A CDSC of 1% is imposed on Class C Shares redeemed within 12 months of
purchase.
/5/A transaction fee of $7.50 may be charged for redemption proceeds paid by
wire. In addition to free reinvestments of dividends and distributions in
shares of other Goldman Sachs Funds or shares of the Goldman Sachs Insti-
tutional Liquid Assets Portfolios (the "ILA Portfolios") and free auto-
matic exchanges pursuant to the Automatic Exchange Program, six free
exchanges are permitted in each 12-month period. A fee of $12.50 may be
charged for each subsequent exchange during such period.
/6/The Funds' annual operating expenses are based on actual expenses, except
for the High Yield Municipal Fund which are based on estimated amounts for
the current fiscal year.
/7/The Investment Adviser has voluntarily agreed not to impose a portion of
the management fee on the Short Duration Tax-Free, Government Income,
Municipal Income and Global Income Funds equal to 0.05%, 0.11%, 0.05% and
0.25%, respectively of such Funds' average daily net assets. As a result
of fee waivers, the current management fees of the Short Duration Tax-
Free, Government Income, Municipal Income and Global Income Funds are
0.35%, 0.54%, 0.50% and 0.65%, respectively, of such Funds' average daily
net assets. The waivers may be terminated at any time at the option of the
Investment Adviser.
/8/Goldman Sachs has voluntarily agreed not to impose a portion of the dis-
tribution and service fees attributable to Class B Shares of the Short
Duration Government and Short Duration Tax-Free Funds equal to 0.15%. The
waiver may be terminated at any time at the option of the distributor. If
this occurs, the distribution and service fees attributable to Class B
Shares of these Funds will increase to 1.00% of each Fund's average daily
net assets.
/9/"Other Expenses" include transfer agency fees equal to 0.19% of the aver-
age daily net assets of each Fund's Class A, B and C Shares, plus all
other ordinary expenses not detailed above. The Investment Adviser has
voluntarily agreed to reduce or limit "Other Expenses" of each Fund (ex-
cluding management fees, distribution and service fees, transfer agency
fees, taxes, interest and brokerage fees and litigation, indemnification
and other extraordinary expenses) to the following percentages of each
Fund's average daily net assets:
<TABLE>
<CAPTION>
Other
Fund Expenses
-------------------------------------
<S> <C>
Adjustable Rate Government 0.05%
Short Duration Government 0.00%
Short Duration Tax Free 0.00%
Government Income 0.00%
Municipal Income 0.00%
Core Fixed Income 0.10%
Global Income 0.00%
High Yield Municipal 0.00%
High Yield 0.02%
</TABLE>
43
<PAGE>
Example
The following Example is intended to help you compare the cost of investing in
a Fund (without the waivers and expense limitations) with the cost of investing
in other mutual funds. The Example assumes that you invest $10,000 in Class A,
B or C Shares of a Fund for the time periods indicated and then redeem all of
your shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that a Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
<TABLE>
<CAPTION>
Fund 1 Year 3 Years 5 Years 10 Years
- ----------------------------------------------------------
<S> <C> <C> <C> <C>
Adjustable Rate
Government
Class A Shares $243 $442 $ 657 $1,276
- ----------------------------------------------------------
Short Duration Government
Class A Shares $307 $534 $ 778 $1,480
Class B Shares
- Assuming complete
redemption at end of
period $385 $673 $985 $1,940
- Assuming no redemption $185 $573 $985 $1,940
Class C Shares
- Assuming complete
redemption at end of
period $285 $573 $985 $2,137
- Assuming no redemption $185 $573 $985 $2,137
- ----------------------------------------------------------
Short Duration Tax-Free
Class A Shares $306 $530 $ 773 $1,468
Class B Shares
- Assuming complete
redemption at end of
period $384 $669 $980 $1,930
- Assuming no redemption $184 $569 $980 $1,930
Class C Shares
- Assuming complete
redemption at end of
period $284 $569 $980 $2,127
- Assuming no redemption $184 $569 $980 $2,127
- ----------------------------------------------------------
Government Income
Class A Shares $579 $852 $1,146 $1,979
Class B Shares
- Assuming complete
redemption at end of
period $711 $952 $1,319 $2,219
- Assuming no redemption $211 $652 $1,119 $2,219
Class C Shares
- Assuming complete
redemption at end of
period $311 $652 $1,119 $2,410
- Assuming no redemption $211 $652 $1,119 $2,410
- ----------------------------------------------------------
</TABLE>
44
<PAGE>
FUND FEES AND EXPENSES
<TABLE>
<CAPTION>
Fund 1 Year 3 Years 5 Years 10 Years
- ---------------------------------------------------------
<S> <C> <C> <C> <C>
Municipal Income
Class A Shares $561 $796 $1,049 $1,774
Class B Shares
- Assuming complete
redemption at end of
period $692 $894 $1,221 $2,016
- Assuming no redemption $192 $594 $1,021 $2,016
Class C Shares
- Assuming complete
redemption at end of
period $292 $594 $1,021 $2,212
- Assuming no redemption $192 $594 $1,021 $2,212
- ---------------------------------------------------------
Core Fixed Income
Class A Shares $545 $748 $ 967 $1,597
Class B Shares
- Assuming complete
redemption at end of
period $676 $845 $1,139 $1,842
- Assuming no redemption $176 $545 $ 939 $1,842
Class C Shares
- Assuming complete
redemption at end of
period $276 $545 $ 939 $2,041
- Assuming no redemption $176 $545 $ 939 $2,041
- ---------------------------------------------------------
Global Income
Class A Shares $617 $967 $1,341 $2,389
Class B Shares
- Assuming complete
redemption at end of
period $725 $994 $1,390 $2,429
- Assuming no redemption $225 $694 $1,190 $2,429
Class C Shares
- Assuming complete
redemption at end of
period $325 $694 $1,190 $2,554
- Assuming no redemption $225 $694 $1,190 $2,554
- ---------------------------------------------------------
High Yield Municipal
Class A Shares $585 $870 N/A N/A
Class B Shares
- Assuming complete
redemption at end of
period $717 $970 N/A N/A
- Assuming no redemption $217 $670 N/A N/A
Class C Shares
- Assuming complete
redemption at end of
period $317 $670 N/A N/A
- Assuming no redemption $217 $670 N/A N/A
- ---------------------------------------------------------
High Yield
Class A Shares $569 $820 $1,090 $1,861
Class B Shares
- Assuming complete
redemption at end of
period $700 $918 $1,262 $2,102
- Assuming no redemption $200 $618 $1,062 $2,102
Class C Shares
- Assuming complete
redemption at end of
period $300 $618 $1,062 $2,296
- Assuming no redemption $200 $618 $1,062 $2,296
- ---------------------------------------------------------
</TABLE>
The hypothetical example assumes that a CDSC will not apply to redemptions of
Class A Shares within the first 18 months. Class B Shares convert to Class A
Shares eight years after purchase; therefore, Class A expenses are used in the
hypothetical example after year eight.
Certain institutions that sell Fund shares and/or their salespersons may
receive other compensation in connection with the sale and distribution of
Class A, Class B and Class C Shares for services to their customers' accounts
and/or the Funds. For additional information regarding such compensation, see
"What Should I Know When I Purchase Shares Through an Authorized Dealer?"
45
<PAGE>
Service Providers
INVESTMENT ADVISERS
<TABLE>
<CAPTION>
Investment Adviser Fund
------------------------------------------------------
<S> <C>
Goldman Sachs Asset
Management ("GSAM") Short Duration Tax-Free
32 Old Slip Government Income
New York, New York 10005 Municipal Income
Core Fixed Income
High Yield Municipal
High Yield
------------------------------------------------------
Goldman Sachs Funds
Management, L.P.
("GSFM") Adjustable Rate Government
32 Old Slip Short Duration Government
New York, New York 10005
------------------------------------------------------
Goldman Sachs Asset
Management International
("GSAMI") Global Income
133 Peterborough Court
London EC4A 2BB
England
------------------------------------------------------
</TABLE>
As of September 1, 1999, the Investment Management Division ("IMD") was
established as a new operating division of Goldman Sachs. This newly created
entity includes GSAM, GSAMI and GSFM. Goldman Sachs registered as an invest-
ment adviser in 1981. GSAMI, a member of the Investment Management Regula-
tory Organization Limited since 1990 and a registered investment adviser
since 1991, is an affiliate of Goldman Sachs. GSFM, a registered investment
adviser since 1990, is a Delaware limited partnership which is an affiliate
of Goldman Sachs. The Goldman Sachs Group, L.P., which controlled the
Investment Advisers, merged into the Goldman Sachs Group, Inc. as a result
of an initial public offering. As of December 31, 1999, GSAM, GSAMI and
GSFM, along with other units of IMD, had assets under management of $258.5
billion.
The Investment Adviser provides day-to-day advice regarding the Funds' port-
folio transactions. The Investment Adviser makes the investment decisions
for the Funds and places purchase and sale orders for the Funds' portfolio
transactions in U.S. and foreign markets. As permitted by applicable law,
these orders may be directed to any brokers, including Goldman Sachs and its
affiliates. While the Investment Adviser is ultimately responsible for the
management of the Funds, it is able to draw upon the research and expertise
of its asset management affiliates for portfolio decisions and management
with respect to certain portfolio securities. In addition, the Investment
Adviser has access to the research and certain
46
<PAGE>
SERVICE PROVIDERS
proprietary technical models developed by Goldman Sachs, and will apply
quantitative and qualitative analysis in determining the appropriate alloca-
tions among categories of issuers and types of securities.
The Investment Adviser also performs the following additional services for
the Funds:
..Supervises all non-advisory operations of the Funds
..Provides personnel to perform necessary executive, administrative and
clerical services to the Funds
..Arranges for the preparation of all required tax returns, reports to
shareholders, prospectuses and statements of additional information and
other reports filed with the Securities and Exchange Commission (the "SEC")
and other regulatory authorities
..Maintains the records of each Fund
..Provides office space and all necessary office equipment and services
MANAGEMENT FEES
As compensation for its services and its assumption of certain expenses, the
Investment Adviser is entitled to the following fees, computed daily and
payable monthly, at the annual rates listed below (as a percentage of each
respective Fund's average daily net assets):
<TABLE>
<CAPTION>
Actual Rate for the
Fiscal Period Ended
Contractual Rate October 31, 1999
-----------------------------------------------------------------
<S> <C> <C>
GSAM:
-----------------------------------------------------------------
Short Duration Tax-Free 0.40% 0.35%
-----------------------------------------------------------------
Government Income 0.65% 0.54%
-----------------------------------------------------------------
Municipal Income 0.55% 0.50%
-----------------------------------------------------------------
Core Fixed Income 0.40% 0.40%
-----------------------------------------------------------------
High Yield Municipal 0.55% N/A
-----------------------------------------------------------------
High Yield 0.70% 0.70%
-----------------------------------------------------------------
GSFM:
-----------------------------------------------------------------
Adjustable Rate Government 0.40% 0.40%
-----------------------------------------------------------------
Short Duration Government 0.50% 0.50%
-----------------------------------------------------------------
GSAMI:
-----------------------------------------------------------------
Global Income 0.90% 0.65%
-----------------------------------------------------------------
</TABLE>
The difference, if any, between the stated fees and the actual fees paid by
the Funds reflects that the Investment Adviser did not charge the full
amount of the fees to which it would have been entitled. The Investment
Adviser may discontinue or modify any such voluntary limitations in the
future at its discretion.
47
<PAGE>
FUND MANAGERS
Fixed Income Portfolio Management Team
..The fixed-income portfolio management team is comprised of a deep team of
sector specialists
..The team strives to maximize risk-adjusted returns by de-emphasizing
interest rate anticipation and focusing on security selection and sector
allocation
..The team manages approximately $50.5 billion in fixed-income assets for
retail, institutional and high net worth clients
U.S. Fixed Income-Investment Management Team
<TABLE>
<CAPTION>
Years Primarily
Name and Title Fund Responsibility Responsible Five Year Employment History
- ---------------------------------------------------------------------------------------------
<C> <C> <C> <S>
Jonathan A. Senior Portfolio Since Mr. Beinner joined the
Beinner Manager-- Adjustable Rate Investment Adviser in
Managing Government 1992 1990. He became a
Director and Short Duration Government 1992 portfolio manager in
Co-Head U.S. Government Income 1992 1992.
Fixed Income Core Fixed Income 1992
- ---------------------------------------------------------------------------------------------
James B. Clark Portfolio Manager-- Since Mr. Clark joined the
Vice President Adjustable Rate Investment Adviser in
Government 1994 1994 as a portfolio
Short Duration Government 1994 manger after working as
Government Income 1994 an investment manager in
Core Fixed Income 2000 the mortgage-backed
securities group at
Travelers Insurance
Company.
- ---------------------------------------------------------------------------------------------
Peter A. Dion Portfolio Manager-- Since Mr. Dion joined the
Vice President Adjustable Rate Investment Adviser in
Government 1995 1992. From 1994 to 1995
Short Duration Government 1995 he was an associate
portfolio manager. He
became a portfolio
manager in 1995.
- ---------------------------------------------------------------------------------------------
C. Richard Lucy Senior Portfolio Since Mr. Lucy joined the
Managing Manager-- Adjustable Rate Investment Adviser in
Director and Government 1992 as a portfolio
Co-Head U.S. Short Duration Government 1992 manager.
Fixed Income Government Income 1992
Core Fixed Income 1992
1992
- ---------------------------------------------------------------------------------------------
James P. Portfolio Manager-- Since Mr. McCarthy joined the
McCarthy Adjustable Rate Investment Adviser in
Vice President Government 1995 1995 as a portfolio
Short Duration Government 1995 manager after working
four years at Nomura
Securities, where he was
an assistant vice
president and an
adjustable rate mortgage
trader.
- ---------------------------------------------------------------------------------------------
</TABLE>
48
<PAGE>
SERVICE PROVIDERS
U.S. Fixed Income-Municipal Investment Management Team
<TABLE>
<CAPTION>
Years Primarily
Name and Title Fund Responsibility Responsible Five Year Employment History
- ------------------------------------------------------------------------------------
<C> <C> <C> <S>
Ben Barber Portfolio Manager-- Since Mr. Barber joined the
Vice President Short Duration Tax- 1999 Investment Adviser in
Free 1999 1999 as a portfolio
Municipal Income 2000 manager. Prior to his
High Yield current position, he
Municipal managed high yield
municipal and municipal
bond funds at Franklin
Templeton for eight
years.
- ------------------------------------------------------------------------------------
Tom Kenny Senior Since Mr. Kenny joined the
Managing Portfolio Manager-- 1999 Investment Adviser in
Director and Short Duration Tax- 1999 1999 as a senior
Head of Free 2000 portfolio manager.
Municipal Bond Municipal Income Previously, he spent 13
Portfolio High Yield years at Franklin
Management Municipal Templeton where he was a
portfolio manager of high
yield municipal and
municipal funds, Director
of Municipal Research and
Director of the Municipal
Bond Department.
- ------------------------------------------------------------------------------------
</TABLE>
U.S. Fixed Income-High Yield Investment Management Team
<TABLE>
<CAPTION>
Years Primarily
Name and Title Fund Responsibility Responsible Five Year Employment History
- ----------------------------------------------------------------------------------
<C> <C> <C> <S>
Rachel Golder Portfolio Since Ms. Golder joined the
Vice President Manager-- 1997 Investment Adviser in 1997
and Director of High Yield as a portfolio manager. She
High Yield is responsible for managing
Credit Research high yield assets. Prior to
joining the Investment
Adviser, she spent six
years at Saudi
International Bank as a
high yield credit analyst
and portfolio manager.
- ----------------------------------------------------------------------------------
Andrew Jessop Senior Portfolio Since Mr. Jessop joined the
Vice President Manager-- 1997 Investment Adviser in 1997
High Yield as a portfolio manager. He
is responsible for managing
high yield assets.
Previously, he worked six
years managing high yield
portfolios at Saudi
International Bank in
London.
- ----------------------------------------------------------------------------------
</TABLE>
49
<PAGE>
<TABLE>
<CAPTION>
Years Primarily
Name and Title Fund Responsibility Responsible Five Year Employment History
- ----------------------------------------------------------------------------------
<C> <C> <C> <S>
Michael L. Senior Portfolio Since Mr. Pasternak is a product
Pasternak Manager-- 1997 manager for high yield
Vice President High Yield assets and contributes to
the management of high
yield assets. He joined the
Investment Adviser in 1997
as a portfolio manager.
Prior to that, he spent
eight years managing high
yield corporate bond and
loan portfolios at Saudi
International Bank in
London.
- ----------------------------------------------------------------------------------
Christopher Portfolio Since Mr. Testa joined the
Testa Manager-- 1997 Investment Adviser in 1994.
Vice President High Yield He became a portfolio
manager in 1996. He has
been responsible for
managing high yield assets
since 1997.
- ----------------------------------------------------------------------------------
</TABLE>
Global Fixed Income--Investment Management Team
<TABLE>
<CAPTION>
Years Primarily
Name and Title Fund Responsibility Responsible Five Year Employment History
- ----------------------------------------------------------------------------------
<C> <C> <C> <S>
Stephen Senior Portfolio Since Mr. Fitzgerald joined the
Fitzgerald Manager-- 1992 Investment Adviser in 1992
Managing Global Income as a portfolio manager.
Director and
Chief
Investment
Officer for
International
Fixed Income
- ----------------------------------------------------------------------------------
Philip Moffitt Portfolio Since Philip joined the
Executive Manager-- 2000 Investment Adviser in 1999
Director; Global Income as a portfolio manager.
Senior Currency Fund Prior to joining the
Portfolio Investment Adviser he
Manager worked for three years as a
proprietary trader for
Tokai Asia Ltd in Hong
Kong. Before that Philip
spent ten years with
Bankers Trust Asset
Management in Australia,
where he was a Managing
Director responsible for
all active global fixed
income funds as well as a
member of the Asset
Allocation Committee.
- ----------------------------------------------------------------------------------
</TABLE>
50
<PAGE>
SERVICE PROVIDERS
<TABLE>
<CAPTION>
Years Primarily
Name and Title Fund Responsibility Responsible Five Year Employment History
- ----------------------------------------------------------------------------------
<C> <C> <C> <S>
Andrew Wilson Portfolio Since Mr. Wilson joined the
Managing Manager-- 1995 Investment Adviser in 1995
Director Global Income as a portfolio manager.
Prior to his current
position, he spent three
years as an Assistant
Director at Rothschild
Asset Management, where he
was responsible for
managing global and
international bond
portfolios with specific
focus on the U.S.,
Canadian, Australian and
Japanese economies.
- ----------------------------------------------------------------------------------
Jennifer Youde Portfolio Since Jennifer joined the
Executive Manager-- 2000 Investment Adviser in 1996
Director Global Income as a portfolio manager and
Fund is a member of the Global
Bond Team. Prior to this,
she was at CINMan for
thirteen years, where she
ran the Japanese and Far
Eastern equity portfolios
for six years, before
taking over the management
of the global bond and
index-linked portfolios.
- ----------------------------------------------------------------------------------
</TABLE>
DISTRIBUTOR AND TRANSFER AGENT
Goldman Sachs, 85 Broad Street, New York, New York 10004, serves as the
exclusive distributor (the "Distributor") of each Fund's shares. Goldman
Sachs, 4900 Sears Tower, Chicago, Illinois 60606-6372, also serves as the
Funds' transfer agent (the "Transfer Agent") and, as such, performs various
shareholder servicing functions.
From time to time, Goldman Sachs or any of its affiliates may purchase and
hold shares of the Funds. Goldman Sachs reserves the right to redeem at any
time some or all of the shares acquired for its own account.
ACTIVITIES OF GOLDMAN SACHS AND ITS AFFILIATES AND OTHER ACCOUNTS MANAGED BY
GOLDMAN SACHS
The involvement of the Investment Adviser, Goldman Sachs and their affili-
ates in the management of, or their interest in, other accounts and other
activities of Goldman Sachs may present conflicts of interest with respect
to a Fund or limit a Fund's investment activities. Goldman Sachs and its
affiliates engage in proprietary trading and advise accounts and funds which
have investment objectives similar to those of the Funds and/or which engage
in and compete for transactions in the same types of securities, currencies
and instruments as the Funds. Goldman
51
<PAGE>
Sachs and its affiliates will not have any obligation to make available any
information regarding their proprietary activities or strategies, or the
activities or strategies used for other accounts managed by them, for the
benefit of the management of the Funds. The results of a Fund's investment
activities, therefore, may differ from those of Goldman Sachs and its affil-
iates, and it is possible that a Fund could sustain losses during periods in
which Goldman Sachs and its affiliates and other accounts achieve signifi-
cant profits on their trading for proprietary or other accounts. In addi-
tion, the Funds may, from time to time, enter into transactions in which
other clients of Goldman Sachs have an adverse interest. A Fund's activities
may be limited because of regulatory restrictions applicable to Goldman
Sachs and its affiliates, and/or their internal policies designed to comply
with such restrictions.
YEAR 2000
Goldman Sachs spent a total of approximately $185 million over the past sev-
eral years to address the potential hardware, software and other computer
and technology issues and related concerns associated with the transition to
Year 2000 and to confirm that its service providers did the same. As a
result of those efforts, Goldman Sachs has not experienced any material dis-
ruptions in its operations in connection with, or following, the transition
to the Year 2000.
52
<PAGE>
Dividends
Over the course of the fiscal year, dividends accrued and paid will constitute
all or substantially all of the Funds' net investment income. The Funds also
intend that all net realized capital gains (after taking into account any
available capital loss carryovers) will be declared as a dividend at least
annually. You may choose to have dividends paid in:
..Cash
..Additional shares of the same class of the same Fund
..Shares of the same or an equivalent class of another Goldman Sachs Fund.
Special restrictions may apply for certain ILA Portfolios. See the Additional
Statement.
You may indicate your election on your Account Application. Any changes may be
submitted in writing to Goldman Sachs at any time before the record date for a
particular dividend or distribution. If you do not indicate any choice, your
dividends and distributions will be reinvested automatically in the applicable
Fund. If cash dividends are elected with respect to the Fund's monthly net
investment income dividends, then cash dividends must also be elected with
respect to the non-long-term capital gains component, if any, of the Fund's
annual dividend.
The election to reinvest dividends and distributions in additional shares will
not affect the tax treatment of such dividends and distributions, which will be
treated as received by you and then used to purchase the shares.
Dividends from net investment income and distributions from capital gains are
declared and paid as follows:
<TABLE>
<CAPTION>
Investment Income Capital Gains
Dividends Distributions
------------------ -----------------
Fund Declared Paid Declared and Paid
- ----------------------------------------------------------------
<S> <C> <C> <C>
Adjustable Rate Government Daily Monthly Annually
- ----------------------------------------------------------------
Short Duration Government Daily Monthly Annually
- ----------------------------------------------------------------
Short Duration Tax-Free Daily Monthly Annually
- ----------------------------------------------------------------
Government Income Daily Monthly Annually
- ----------------------------------------------------------------
Municipal Income Daily Monthly Annually
- ----------------------------------------------------------------
Core Fixed Income Daily Monthly Annually
- ----------------------------------------------------------------
Global Income Monthly Monthly Annually
- ----------------------------------------------------------------
High Yield Municipal Daily Monthly Annually
- ----------------------------------------------------------------
High Yield Daily Monthly Annually
- ----------------------------------------------------------------
</TABLE>
From time to time a portion of a Fund's dividends may constitute a return of
capital.
53
<PAGE>
At the time of an investor's purchase of shares of a Fund, a portion of the NAV
per share may be represented by undistributed income or undistributed realized
appreciation of the Fund's portfolio securities. Therefore, subsequent distri-
butions on such shares from such income or realized appreciation may be taxable
to you even if the NAV of the shares is, as a result of the distributions,
reduced below the cost of such shares and the distributions (or portions there-
of) represent a return of a portion of the purchase price.
54
<PAGE>
Shareholder Guide
The following section will provide you with answers to some of the most
often asked questions regarding buying and selling the Funds' shares.
HOW TO BUY SHARES
How Can I Purchase Class A, Class B And Class C Shares Of The Funds?
You may purchase shares of the Funds through:
..Goldman Sachs;
..Authorized Dealers; or
..Directly from Goldman Sachs Trust (the "Trust").
In order to make an initial investment in a Fund, you must furnish to the
Fund, Goldman Sachs or your Authorized Dealer the information in the Account
Application attached to this Prospectus.
To Open an Account:
..Complete the enclosed Account Application
..Mail your payment and Account Application to:
Your Authorized Dealer
- Purchases by check or Federal Reserve draft should be made payable to
your Authorized Dealer
- Your Authorized Dealer is responsible for forwarding payment promptly
(within three business days) to the Fund
or
Goldman Sachs Funds c/o National Financial Data Services, Inc. ("NFDS"),
P.O. Box 219711, Kansas City, MO 64121-9711
- Purchases by check or Federal Reserve draft should be made payable to
Goldman Sachs Funds - (Name of Fund and Class of Shares)
- NFDS will not accept a check drawn on a foreign bank or a third-party
check, cash, money orders, travelers checques or credit card checks
- Federal funds wire, Automated Clearing House Network ("ACH") transfer or
bank wires should be sent to State Street Bank and Trust Company ("State
Street") (each Fund's custodian). Please call the Funds at 1-800-526-7384
to get detailed instructions on how to wire your money.
55
<PAGE>
What Is My Minimum Investment In The Funds?
<TABLE>
<CAPTION>
Initial Additional
------------------------------------------------------------------------------
<S> <C> <C>
Regular Accounts $1,000 $50
------------------------------------------------------------------------------
Tax-Sheltered Retirement Plans (excluding SIMPLE IRAs and
Education IRAs) $250 $50
------------------------------------------------------------------------------
Uniform Gift to Minors Act Accounts/Uniform Transfer to
Minors Act Accounts $250 $50
------------------------------------------------------------------------------
403(b) Plan Accounts $200 $50
------------------------------------------------------------------------------
SIMPLE IRAs and Education IRAs $50 $50
------------------------------------------------------------------------------
Automatic Investment Plan Accounts $50 $50
------------------------------------------------------------------------------
</TABLE>
What Alternative Sales Arrangements Are Available?
The Funds offer three classes of shares through this Prospectus.*
-----------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Maximum Amount You Can Buy in Class A No limit
the Aggregate Across Funds
--------------------------------------------
Class B $250,000
--------------------------------------------
Class C $1,000,000 ($500,000 in the
case of Short Duration
Government and Short
Duration Tax-Free Funds)
--------------------------------------------------------------------
Initial Sales Charge Class A Applies to purchases of less
than $1 million ($500,000 in
the case of Short Duration
Government and Short
Duration Tax-Free Funds)--
varies by size of investment
with a maximum of 4.5%
--------------------------------------------
Class B None
--------------------------------------------
Class C None
--------------------------------------------------------------------
CDSC Class A 1.00% on certain investments
of $1 million or more if you
sell within 18 months (ex-
cept for certain redemptions
of Adjustable Rate Govern-
ment Fund Class A Shares
that were purchased direct-
ly, as opposed to exchanges)
--------------------------------------------
Class B 6 year declining CDSC with a
maximum of 5%
(2% in the case of Short
Duration Government and
Short Duration Tax-Free
Funds)
--------------------------------------------
Class C 1% if shares are redeemed
within 12 months of purchase
--------------------------------------------------------------------
Conversion Feature Class A None
--------------------------------------------
Class B Class B Shares convert to
Class A Shares after 8 years
--------------------------------------------
Class C None
--------------------------------------------------------------------
</TABLE>
* The Adjustable Rate Government Fund does not currently, but may in the
future, offer Class B and Class C Shares.
56
<PAGE>
SHAREHOLDER GUIDE
What Else Should I Know About Share Purchases?
The Trust reserves the right to:
..Refuse to open an account if you fail to (i) provide a social security num-
ber or other taxpayer identification number; or (ii) certify that such num-
ber is correct (if required to do so under applicable law).
..Reject or restrict any purchase or exchange order by a particular purchaser
(or group of related purchasers). This may occur, for example, when a pat-
tern of frequent purchases, sales or exchanges of shares of a Fund is evi-
dent, or if purchases, sales or exchanges are, or a subsequent abrupt
redemption might be, of a size that would disrupt management of a Fund.
..Close a Fund to new investors from time to time and reopen any such Fund
whenever it is deemed appropriate by a Fund's Investment Adviser.
..Modify or waive the minimum investment amounts.
..Modify the manner in which shares are offered.
..Modify the sales charge rates applicable to future purchases of shares.
The Funds may allow you to purchase shares with securities instead of cash
if consistent with a Fund's investment policies and operations and if
approved by the Fund's Investment Adviser.
How Are Shares Priced?
The price you pay or receive when you buy, sell or exchange shares is deter-
mined by a Fund's NAV and share class. Each class calculates its NAV as fol-
lows:
(Value of Assets of the Class)
- (Liabilities of the Class)
NAV = _______________________________
Number of Outstanding Shares of the Class
The Funds' investments are valued based on market quotations, which may be
furnished by a pricing service or provided by securities dealers. If accu-
rate quotations are not readily available, the fair value of the Funds'
investments may be determined based on yield equivalents, a pricing matrix
or other sources, under valuation procedures established by the Trustees.
Debt obligations with a remaining maturity of 60 days or less are valued at
amortized cost.
..NAV per share of each share class is calculated by the Fund's custodian on
each business day as of the close of regular trading on the New York Stock
Exchange (normally 4:00 p.m. New York time). This occurs after the determi-
nation, if any, of the income to be declared as a dividend (except in the
case of the Global Income Fund). Fund shares will not be priced on any day
the New York Stock Exchange is closed.
..When you buy shares, you pay the NAV next calculated after the Funds
receive your order in proper form, plus any applicable sales charge.
..When you sell shares, you receive the NAV next calculated after the Funds
receive your order in proper form, less any applicable CDSC.
57
<PAGE>
Note: The time at which transactions and shares are priced and the time by
which orders must be received may be changed in case of an emergency or if
regular trading on the New York Stock Exchange is stopped at a time other
than 4:00 p.m. New York time.
Foreign securities may trade in their local markets on days a Fund is
closed. As a result, the NAV of a Fund that holds foreign securities may be
impacted on days when investors may not purchase or redeem Fund shares.
In addition, the impact of events that occur after the publication of market
quotations used by a Fund to price its securities (for example, in foreign
markets) but before the close of regular trading on the New York Stock
Exchange will normally not be reflected in a Fund's next determined NAV
unless the Trust, in its discretion, makes an adjustment in light of the
nature and materiality of the event, its effect on Fund operations and other
relevant factors.
COMMON QUESTIONS ABOUT THE PURCHASE OF CLASS A SHARES
What Is The Offering Price Of Class A Shares?
The offering price of Class A Shares of each Fund is the next determined NAV
per share plus an initial sales charge paid to Goldman Sachs at the time of
purchase of shares. The sales charge varies depending upon the amount you
purchase. In some cases, described below, the initial sales charge may be
eliminated altogether, and the offering price will be the NAV per share. The
current sales charges and commissions paid to Authorized Dealers for Class A
Shares of the Government Income, Municipal Income, Core Fixed Income, Global
Income, High Yield Municipal and High Yield Funds are as follows:
<TABLE>
<CAPTION>
Sales Charge Maximum Dealer
Sales Charge as as Percentage Allowance as
Amount of Purchase Percentage of of Net Amount Percentage of
(including sales charge, if any) Offering Price Invested Offering Price*
---------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $100,000 4.50% 4.71% 4.00%
$100,000 up to (but less than)
$250,000 3.00 3.09 2.50
$250,000 up to (but less than)
$500,000 2.50 2.56 2.00
$500,000 up to (but less than)
$1 million 2.00 2.04 1.75
$1 million or more 0.00** 0.00** ***
---------------------------------------------------------------------------------
</TABLE>
58
<PAGE>
SHAREHOLDER GUIDE
The current sales charges and commissions paid to Authorized Dealers for
Class A Shares of the Short Duration Government and Short Duration Tax-Free
Funds are as follows:
<TABLE>
<CAPTION>
Sales Charge Maximum Dealer
Sales Charge as as Percentage Allowance as
Amount of Purchase Percentage of of Net Amount Percentage of
(including sales charge, if any) Offering Price Invested Offering Price*
---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $250,000 2.00% 2.04% 1.75%
$250,000 up to (but less than) $500,000 1.50 1.52 1.25
$500,000 or more 0.00** 0.00** ***
---------------------------------------------------------------------------------------
</TABLE>
The current sales charges and commissions paid to Authorized Dealers of
Class A Shares of the Adjustable Rate Government Fund are as follows:
<TABLE>
<CAPTION>
Sales Charge Maximum Dealer
Sales Charge as as Percentage Allowance as
Amount of Purchase Percentage of of Net Amount Percentage of
(including sales charge, if any) Offering Price Invested Offering Price*
---------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $500,000 1.50% 1.52% 1.25%
$500,000 up to (but less than)
$1 million 1.00 1.01 0.75
$1 million or more 0.00 0.00 0.00
---------------------------------------------------------------------------------
</TABLE>
* Dealer's allowance may be changed periodically. During special promo-
tions, the entire sales charge may be allowed to Authorized Dealers.
Authorized Dealers to whom substantially the entire sales charge is
allowed may be deemed to be "underwriters" under the Securities Act of
1933.
** No sales charge is payable at the time of purchase of Class A Shares of
$1 million ($500,000 in the case of the Short Duration Government and
Short Duration Tax-Free Funds) or more, but a CDSC of 1% may be imposed
in the event of certain redemptions within 18 months of purchase.
*** The Distributor pays a one-time commission to Authorized Dealers who
initiate or are responsible for purchases of $1 million or more of
shares of the Funds ($500,000 in the case of the Short Duration Govern-
ment and Short Duration Tax-Free Funds) equal to 1.00% of the amount
under $3 million, 0.50% of the next $2 million, and 0.25% thereafter.
The Distributor may also pay, with respect to all or a portion of the
amount purchased, a commission in accordance with the foregoing schedule
to Authorized Dealers who initiate or are responsible for purchases of
$500,000 or more by certain pension and profit sharing plans, pension
funds and other company-sponsored benefit plans investing in the Funds
which satisfy the criteria set forth below in "When Are Class A Shares
Not Subject To A Sales Load?" or $1 million ($500,000 in the case of the
Short Duration Government and Short Duration Tax-Free Funds) or more by
certain "wrap" accounts. Purchases by such plans will be made at NAV
with no initial sales charge, but if all of the shares held are redeemed
within 18 months after the end of the calendar month in which such pur-
chase was made, a CDSC of 1% may be imposed upon the plan sponsor or the
third party administrator. In addition, Authorized Dealers will remit to
the Distributor such payments received in connection with "wrap"
accounts in the event that shares are redeemed within 18 months after
the end of the calendar month in which the purchase was made.
59
<PAGE>
What Else Do I Need To Know About Class A Shares' CDSC?
Purchases of $1 million ($500,000 in the case of the Short Duration Govern-
ment and Short Duration Tax-Free Funds) or more of Class A Shares will be
made at NAV with no initial sales charge. However, if you redeem shares
within 18 months after the end of the calendar month in which the purchase
was made, excluding any period of time in which the shares were exchanged
into and remained invested in an equivalent class of an ILA Portfolio, a
CDSC of 1% may be imposed. The CDSC may not be imposed if your Authorized
Dealer enters into an agreement with the Distributor to return all or an
applicable prorated portion of its commission to the Distributor. The CDSC
is waived on redemptions in certain circumstances. See "In What Situations
May The CDSC On Class A, B Or C Shares Be Waived Or Reduced?" below.
When Are Class A Shares Not Subject To A Sales Load?
Class A Shares of the Funds may be sold at NAV without payment of any sales
charge to the following individuals and entities:
..Goldman Sachs, its affiliates or their respective officers, partners,
directors or employees (including retired employees and former partners),
any partnership of which Goldman Sachs is a general partner, any Trustee or
officer of the Trust and designated family members of any of these individ-
uals;
..Qualified retirement plans of Goldman Sachs;
..Trustees or directors of investment companies for which Goldman Sachs or an
affiliate acts as sponsor;
..Any employee or registered representative of any Authorized Dealer or their
respective spouses, children and parents;
..Banks, trust companies or other types of depository institutions investing
for their own account or investing for discretionary or non-discretionary
accounts;
..Any state, county or city, or any instrumentality, department, authority or
agency thereof, which is prohibited by applicable investment laws from pay-
ing a sales charge or commission in connection with the purchase of shares
of a Fund;
..Pension and profit sharing plans, pension funds and other company-sponsored
benefit plans that:
.Buy shares of Goldman Sachs Funds worth $500,000 or more; or
.Have 100 or more eligible employees at the time of purchase; or
.Certify that they expect to have annual plan purchases of shares of
Goldman Sachs Funds of $200,000 or more; or
.Are provided administrative services by certain third-party administra-
tors that have entered into a special service arrangement with Goldman
Sachs relating to such plans; or
.Have at the time of purchase aggregate assets of at least $2,000,000.
60
<PAGE>
SHAREHOLDER GUIDE
.."Wrap" accounts for the benefit of clients of broker-dealers, financial
institutions or financial planners, provided they have entered into an
agreement with GSAM specifying aggregate minimums and certain operating
policies and standards;
..Registered investment advisers investing for accounts for which they
receive asset-based fees;
..Accounts over which GSAM or its advisory affiliates have investment discre-
tion; or
..Shareholders receiving distributions from a qualified retirement plan
invested in the Goldman Sachs Funds and reinvesting such proceeds in a
Goldman Sachs IRA.
You must certify eligibility for any of the above exemptions on your Account
Application and notify the Fund if you no longer are eligible for the exemp-
tion. The Fund will grant you an exemption subject to confirmation of your
entitlement. You may be charged a fee if you effect your transactions
through a broker or agent.
How Can The Sales Charge On Class A Shares Be Reduced?
..Right of Accumulation: When buying Class A Shares in Goldman Sachs Funds,
your current aggregate investment determines the initial sales load you
pay. You may qualify for reduced sales charges when the current market
value of holdings (shares at current offering price), plus new purchases,
reaches $100,000 or more in the case of the Government Income, Municipal
Income, Core Fixed Income, Global Income, High Yield Municipal and High
Yield Funds; $250,000 or more in the case of the Short Duration Government
and Short Duration Tax-Free Funds; and $500,000 or more in the case of the
Adjustable Rate Government Fund. Class A Shares of any of the Goldman Sachs
Funds may be combined under the Right of Accumulation. To qualify for a
reduced sales load, you or your Authorized Dealer must notify the Fund's
Transfer Agent at the time of investment that a quantity discount is appli-
cable. Use of this service is subject to a check of appropriate records.
The Additional Statement has more information about the Right of Accumula-
tion.
..Statement of Intention: You may obtain a reduced sales charge by means of a
written Statement of Intention which expresses your non-binding commitment
to invest in the aggregate $100,000 or more (not counting reinvestments of
dividends and distributions) within a period of 13 months in the case of
the Government Income, Municipal Income, Core Fixed Income, Global Income,
High Yield Municipal and High Yield Funds; $250,000 or more in the case of
the Short Duration Government and Short Duration Tax-Free Funds; and
$500,000 or more in the case of the Adjustable Rate Government Fund. Any
61
<PAGE>
investments you make during the period will receive the discounted sales
load based on the full amount of your investment commitment. If the invest-
ment commitment of the Statement of Intention is not met prior to the expi-
ration of the 13-month period, the entire amount will be subject to the
higher applicable sales charge. By signing the Statement of Intention, you
authorize the Transfer Agent to escrow and redeem Class A Shares in your
account to pay this additional charge. The Additional Statement has more
information about the Statement of Intention, which you should read care-
fully.
COMMON QUESTIONS ABOUT THE PURCHASE OF CLASS B SHARES
What Is The Offering Price Of Class B Shares?
You may purchase Class B Shares of the Funds (other than the Adjustable Rate
Government Fund) at the next determined NAV without an initial sales charge.
However, Class B Shares redeemed within six years (three years in the case
of the Short Duration Government and Short Duration Tax-Free Funds) of pur-
chase will be subject to a CDSC at the rates shown in the table below based
on how long you held your shares.
The CDSC schedule is as follows:
<TABLE>
<CAPTION>
CDSC as a Percentage of Dollar Amount Subject to CDSC
-----------------------------------------------------
Government Income, Municipal
Income, Core Fixed Income, Global
Income, High Yield Municipal Short Duration Government and
Year Since Purchase and High Yield Funds Short Duration Tax-Free Funds
----------------------------------------------------------------------------------------
<S> <C> <C>
First 5% 2%
Second 4% 1.5%
Third 3% 1%
Fourth 3% None
Fifth 2% None
Sixth 1% None
Seventh and thereafter None None
----------------------------------------------------------------------------------------
</TABLE>
Proceeds from the CDSC are payable to the Distributor and may be used in
whole or in part to defray the Distributor's expenses related to providing
distribution-related services to the Funds in connection with the sale of
Class B Shares, including the payment of compensation to Authorized Dealers.
A commission equal to 2% in the case of the Short Duration Government and
Short Duration Tax-Free Funds and 4% in the case of all other Funds of the
amount invested is paid to Authorized Dealers.
62
<PAGE>
SHAREHOLDER GUIDE
What Should I Know About The Automatic Conversion Of Class B Shares?
Class B Shares of a Fund will automatically convert into Class A Shares of
the same Fund at the end of the calendar quarter that is eight years after
the purchase date.
If you acquire Class B Shares of a Fund by exchange from Class B Shares of
another Goldman Sachs Fund, your Class B Shares will convert into Class A
Shares of such Fund based on the date of the initial purchase and the CDSC
schedule of that purchase.
If you acquire Class B Shares through reinvestment of distributions, your
Class B Shares will convert into Class A Shares based on the date of the
initial purchase of the shares on which the distribution was paid.
The conversion of Class B Shares to Class A Shares will not occur at any
time the Funds are advised that such conversions may constitute taxable
events for federal tax purposes, which the Funds believe is unlikely. If
conversions do not occur as a result of possible taxability, Class B Shares
would continue to be subject to higher expenses than Class A Shares for an
indeterminate period.
A COMMON QUESTION ABOUT THE PURCHASE OF CLASS C SHARES
What Is The Offering Price Of Class C Shares?
You may purchase Class C Shares of the Funds (other than the Adjustable Rate
Government Fund) at the next determined NAV without paying an initial sales
charge. However, if you redeem Class C Shares within 12 months of purchase,
a CDSC of 1% will normally be deducted from the redemption proceeds; pro-
vided that in connection with purchases by pension and profit sharing plans,
pension funds and other company-sponsored benefit plans, where all of the
Class C Shares are redeemed within 12 months of purchase, a CDSC of 1% may
be imposed upon the plan sponsor or third party administrator.
Proceeds from the CDSC are payable to the Distributor and may be used in
whole or in part to defray the Distributor's expenses related to providing
distribution-related services to the Funds in connection with the sale of
Class C Shares, including the payment of compensation to Authorized Dealers.
An amount equal to 1% of the amount invested is normally paid by the Dis-
tributor to Authorized Dealers.
63
<PAGE>
COMMON QUESTIONS APPLICABLE TO THE PURCHASE OF CLASS A, B
AND C SHARES
When Will Shares Be Issued And Dividends Begin To Be Paid?
Global Income Fund: If a purchase order is received in proper form before
the Fund's NAV is determined, shares will be issued the same day and will be
entitled to any dividend declared which have record dates on or after such
purchase date.
For all other Funds:
..Shares Purchased by Federal Funds Wire or ACH Transfer:
.If a purchase order in proper form specifies a settlement date and is
received before the Fund's NAV is determined, shares will be issued and
dividends will begin to accrue on the purchased shares on the later of
(i) the business day after the purchase order is received; or (ii) the
day that the federal funds wire or ACH transfer is received by State
Street.
.If a purchase order in proper form does not specify a settlement date,
shares will be issued and dividends will begin to accrue on the business
day after payment is received.
..Shares Purchased by Check or Federal Reserve Draft:
.If a purchase order in proper form specifies a settlement date and is
received before the Fund's NAV is determined, shares will be issued and
dividends will begin to accrue on the business day after payment is
received.
.If a purchase order in proper form does not specify a settlement date,
shares will be issued and dividends will being to accrue on the business
day after payment is received.
What Else Do I Need To Know About The CDSC On Class A, B Or C Shares?
..The CDSC is based on the lesser of the NAV of the shares at the time of
redemption or the original offering price (which is the original NAV).
.No CDSC is charged on shares acquired from reinvested dividends or capi-
tal gains distributions.
.No CDSC is charged on the per share appreciation of your account over the
initial purchase price.
.When counting the number of months since a purchase of Class B or Class C
Shares was made, all payments made during a month will be combined and
considered to have been made on the first day of that month.
..To keep your CDSC as low as possible, each time you place a request to sell
shares, the Funds will first sell any shares in your account that do not
carry a CDSC and then the shares in your account that have been held the
longest.
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SHAREHOLDER GUIDE
In What Situations May The CDSC On Class A, B Or C Shares Be Waived Or
Reduced?
The CDSC on Class A, Class B and Class C Shares that are subject to a CDSC
may be waived or reduced if the redemption relates to:
..Retirement distributions or loans to participants or beneficiaries from
pension and profit sharing plans, pension funds and other company-sponsored
benefit plans (each a "Retirement Plan");
..The death or disability (as defined in Section 72(m)(7) of the Internal
Revenue Code of 1986, as amended (the "Code")) of a participant or benefi-
ciary in a Retirement Plan;
..Hardship withdrawals by a participant or beneficiary in a Retirement Plan;
..Satisfying the minimum distribution requirements of the Code;
..Establishing "substantially equal periodic payments" as described under
Section 72(t)(2) of the Code;
..The separation from service by a participant or beneficiary in a Retirement
Plan;
..The death or disability (as defined in Section 72(m)(7) of the Code) of a
shareholder if the redemption is made within one year of the event;
..Excess contributions distributed from a Retirement Plan;
..Distributions from a qualified Retirement Plan invested in the Goldman
Sachs Funds which are being rolled over to a Goldman Sachs IRA; or
..Redemption proceeds which are to be reinvested in accounts or non-regis-
tered products over which GSAM or its advisory affiliates have investment
discretion.
In addition, Class A, B and C Shares subject to a systematic withdrawal plan
may be redeemed without a CDSC. The Funds reserve the right to limit such
redemptions, on an annual basis, to 12% each of the value of your Class B
and C Shares and 10% of the value of your Class A Shares.
How Do I Decide Whether To Buy Class A, B Or C Shares?
The decision as to which Class to purchase depends on the amount you invest,
the intended length of the investment and your personal situation.
..Class A Shares. If you are making an investment of $100,000 or more that
qualifies for a reduced sales charge, you should consider purchasing Class
A Shares.
..Class B Shares. If you plan to hold your investment for at least six years
(three years in the case of the Short Duration Government and Short Dura-
tion Tax-Free Funds) and would prefer not to pay an initial sales charge,
you might consider purchasing Class B Shares. By not paying a front-end
sales charge, your entire investment in Class B Shares is available to work
for you from the time you make your initial investment. However, the dis-
tribution and service
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<PAGE>
fee paid by Class B Shares will cause your Class B Shares (until conversion
to Class A Shares) to have a higher expense ratio, and thus lower perfor-
mance and lower dividend payments (to the extent dividends are paid) than
Class A Shares. A maximum purchase limitation of $250,000 in the aggregate
normally applies to Class B Shares.
..Class C Shares. If you are unsure of the length of your investment or plan
to hold your investment for less than six years and would prefer not to pay
an initial sales charge, you may prefer Class C Shares. By not paying a
front-end sales charge, your entire investment in Class C Shares is avail-
able to work for you from the time you make your initial investment. Howev-
er, the distribution and service fee paid by Class C Shares will cause your
Class C Shares to have a higher expense ratio, and thus lower performance
and lower dividend payments (to the extent dividends are paid) than Class A
Shares (or Class B Shares after conversion to Class A Shares).
Although Class C Shares are subject to a CDSC for only 12 months, Class C
Shares do not have the conversion feature applicable to Class B Shares and
your investment will therefore pay higher distribution fees indefinitely.
A maximum purchase limitation of $1,000,000 ($500,000 in the case of the
Short Duration Government and Short Duration Tax-Free Funds) in the aggre-
gate normally applies to purchases of Class C Shares.
Note: Authorized Dealers may receive different compensation for selling
Class A, Class B or Class C Shares.
In addition to Class A, Class B and Class C Shares, each Fund also offers
other classes of shares to investors. These other share classes are subject
to different fees and expenses (which affect performance), have different
minimum investment requirements and are entitled to different services.
Information regarding these other share classes may be obtained from your
sales representative or from Goldman Sachs by calling the number on the back
cover of this Prospectus.
HOW TO SELL SHARES
How Can I Sell Class A, Class B And Class C Shares Of The Funds?
You may arrange to take money out of your account by selling (redeeming)
some or all of your shares. Each Fund will redeem its shares upon request on
any business day at the NAV next determined after receipt of such request in
proper form, subject to any applicable CDSC. You may request that redemption
proceeds be sent to you by check or by wire (if the wire instructions are on
record). Redemptions may be requested in writing or by telephone.
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SHAREHOLDER GUIDE
<TABLE>
<CAPTION>
Instructions For Redemptions:
-------------------------------------------------------------------
<S> <C>
By Writing: .Write a letter of instruction that includes:
.Your name(s) and signature(s)
.Your account number
.The Fund name and Class of Shares
.The dollar amount you want to sell
.How and where to send the proceeds
.Obtain a signature guarantee (see details below)
.Mail your request to:
Goldman Sachs Funds
c/o NFDS
P.O. Box 219711
Kansas City, MO 64121-9711
-------------------------------------------------------------------
By Telephone: If you have not declined the telephone redemption
privilege on your Account Application:
.1-800-526-7384
(8:00 a.m. to 4:00 p.m. New York time)
.You may redeem up to $50,000 of your shares
within any 7 calendar day period
.Proceeds which are sent directly to a Goldman
Sachs brokerage account are not subject to the
$50,000 limit
-------------------------------------------------------------------
</TABLE>
When Do I Need A Signature Guarantee To Redeem Shares?
A signature guarantee is required if:
..You are requesting in writing to redeem shares in an amount over $50,000;
..You would like the redemption proceeds sent to an address that is not your
address of record; or
..You would like to change the bank designated on your Account Application.
A signature guarantee is designed to protect you, the Funds and Goldman
Sachs from fraud. You may obtain a signature guarantee from a bank, securi-
ties broker or dealer, credit union having the authority to issue signature
guarantees, savings and loan association, building and loan association,
cooperative bank, federal savings bank or association, national securities
exchange, registered securities association or clearing agency, provided
that such institution satisfies the standards established by Goldman Sachs.
Additional documentation may be required for executors, trustees or corpora-
tions or when deemed appropriate by the Transfer Agent.
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<PAGE>
What Do I Need To Know About Telephone Redemption Requests?
The Trust, the Distributor, and the Transfer Agent will not be liable for
any loss you may incur in the event that the Trust accepts unauthorized tel-
ephone redemption requests that the Trust reasonably believes to be genuine.
The Trust may accept telephone redemption instructions from any person iden-
tifying himself or herself as the owner of an account or the owner's regis-
tered representative where the owner has not declined in writing to use this
service. Thus, you risk possible losses if a telephone redemption is not
authorized by you.
In an effort to prevent unauthorized or fraudulent redemption and exchange
requests by telephone, Goldman Sachs and NFDS each employ reasonable proce-
dures specified by the Trust to confirm that such instructions are genuine.
If reasonable procedures are not employed, the Trust may be liable for any
loss due to unauthorized or fraudulent transactions. The following general
policies are currently in effect:
..All telephone requests are recorded.
..Proceeds of telephone redemption requests will be sent only to your address
of record or authorized bank account designated in the Account Application
(unless you provide written instructions and a signature guarantee, indi-
cating another address or account) and exchanges of shares normally will be
made only to an identically registered account.
..Telephone redemptions will not be accepted during the 30-day period follow-
ing any change in your address of record.
..The telephone redemption option does not apply to shares held in a "street
name" account. "Street name" accounts are accounts maintained and serviced
by your Authorized Dealer. If your account is held in "street name," you
should contact your registered representative of record, who may make tele-
phone redemptions on your behalf.
..The telephone redemption option may be modified or terminated at any time.
Note: It may be difficult to make telephone redemptions in times of drastic
economic or market conditions.
How Are Redemption Proceeds Paid?
By Wire: You may arrange for your redemption proceeds to be wired as federal
funds to the bank account designated in your Account Application. The fol-
lowing general policies govern wiring redemption proceeds:
..Redemption proceeds will normally be wired on the next business day in fed-
eral funds (for a total of one business day delay), but may be paid up to
three business days following receipt of a properly executed wire transfer
redemption request. If you are selling shares you recently paid for by
check, the Fund will pay you when your check has cleared, which may take up
to 15 days.
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SHAREHOLDER GUIDE
If the Federal Reserve Bank is closed on the day that the redemption pro-
ceeds would ordinarily be wired, wiring the redemption proceeds may be
delayed one additional business day.
..A transaction fee of $7.50 may be charged for payments of redemption pro-
ceeds by wire. Your bank may also charge wiring fees. You should contact
your bank directly to learn whether it charges such fees.
..To change the bank designated on your Account Application you must send
written instructions (with your signature guaranteed) to the Transfer
Agent.
..Neither the Trust, Goldman Sachs nor any Authorized Dealer assumes any
responsibility for the performance of your bank or any intermediaries in
the transfer process. If a problem with such performance arises, you should
deal directly with your bank or any such intermediaries.
By Check: You may elect to receive your redemption proceeds by check.
Redemption proceeds paid by check will normally be mailed to the address of
record within three business days of a properly executed redemption request.
If you are selling shares you recently paid for by check, the Fund will pay
you when your check has cleared, which may take up to 15 days.
What Else Do I Need To Know About Redemptions?
The following generally applies to redemption requests:
..Shares of each Fund (other than the Global Income Fund) earn dividends
declared on the day the shares are redeemed.
..Additional documentation may be required when deemed appropriate by the
Transfer Agent. A redemption request will not be in proper form until such
additional documentation has been received.
The Trust reserves the right to:
..Redeem your shares if your account balance is less than $50 as a result of
earlier redemptions. The Funds will not redeem your shares on this basis if
the value of your account falls below the minimum account balance solely as
a result of market conditions. The Funds will give you 60 days' prior writ-
ten notice to allow you to purchase sufficient additional shares of the
Fund in order to avoid such redemption.
..Redeem your shares in other circumstances determined by the Board of Trust-
ees to be in the best interests of the Trust.
..Pay redemptions by a distribution in-kind of securities (instead of cash).
If you receive redemption proceeds in-kind, you should expect to incur
transaction costs upon the disposition of those securities.
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<PAGE>
Can I Reinvest Redemption Proceeds In The Same Or Another Goldman Sachs
Fund?
You may redeem shares of a Fund and reinvest a portion or all of the redemp-
tion proceeds (plus any additional amounts needed to round off purchases to
the nearest full share) at NAV. To be eligible for this privilege, you must
hold the shares you want to redeem for at least 30 days and you must rein-
vest the share proceeds within 90 days after you redeem. You may reinvest as
follows:
.Class A or B Shares--Class A Shares of the same Fund or any other Goldman
Sachs Fund
.Class C Shares--Class C Shares of the same Fund or any other Goldman
Sachs Fund
..You should obtain and read the applicable prospectuses before investing in
any other Funds.
..If you pay a CDSC upon redemption of Class A or Class C Shares and then
reinvest in Class A or Class C Shares as described above, your account will
be credited with the amount of the CDSC you paid. The reinvested shares
will, however, continue to be subject to a CDSC. The holding period of the
shares acquired through reinvestment will include the holding period of the
redeemed shares for purposes of computing the CDSC payable upon a subse-
quent redemption. For Class B Shares, you may reinvest the redemption pro-
ceeds in Class A Shares at NAV but the amount of the CDSC paid upon redemp-
tion of the Class B Shares will not be credited to your account.
..The reinvestment privilege may be exercised at any time in connection with
transactions in which the proceeds are reinvested at NAV in a tax-sheltered
retirement plan. In other cases, the reinvestment privilege may be exer-
cised once per year upon receipt of a written redemption request.
..You may be subject to tax as a result of a redemption. You should consult
your tax adviser concerning the tax consequences of a redemption and rein-
vestment.
Can I Exchange My Investment From One Fund To Another?
You may exchange shares of a Fund at NAV without the imposition of an ini-
tial sales charge or CDSC at the time of exchange for shares of the same
class or an equivalent class of any other Goldman Sachs Fund. The exchange
privilege may be materially modified or withdrawn at any time upon 60 days'
written notice to you.
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SHAREHOLDER GUIDE
<TABLE>
<CAPTION>
Instructions For Exchanging Shares:
-------------------------------------------------------------------
<S> <C>
By Writing: .Write a letter of instruction that includes:
.Your name(s) and signature(s)
.Your account number
.The Fund names and Class of Shares
.The dollar amount you want to exchange
.Obtain a signature guarantee (see details above)
.Mail the request to:
Goldman Sachs Funds
c/o NFDS
P.O. Box 219711
Kansas City, MO 64121-9711
or for overnight delivery--
Goldman Sachs Funds
c/o NFDS
330 West 9th St.
Poindexter Bldg., 1st Floor
Kansas City, MO 64105
-------------------------------------------------------------------
By Telephone: If you have not declined the telephone exchange
privilege on your Account Application:
.1-800-526-7384 (8:00 a.m. to 4:00 p.m.
New York time)
-------------------------------------------------------------------
</TABLE>
You should keep in mind the following factors when making or considering an
exchange:
..You should obtain and carefully read the prospectus of the Fund you are
acquiring before making an exchange.
..Six free exchanges are allowed in each 12 month period.
..A $12.50 fee may be charged for each subsequent exchange.
..There is no charge for exchanges made pursuant to the Automatic Exchange
Program.
..The exchanged shares may later be exchanged for shares of the same class
(or an equivalent class) of the original Fund at the next determined NAV
without the imposition of an initial sales charge or CDSC if the amount in
the Fund resulting from such exchanges is less than the largest amount on
which you have previously paid the applicable sales charge.
..When you exchange shares subject to a CDSC, no CDSC will be charged at that
time. The exchanged shares will be subject to the CDSC of the shares origi-
nally held. For purposes of determining the amount of the applicable CDSC,
the length of time you have owned the shares will be measured from the date
you acquired the original shares subject to a CDSC and will not be affected
by a subsequent exchange.
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<PAGE>
..Eligible investors may exchange certain classes of shares for another class
of shares of the same Fund. For further information, call Goldman Sachs
Funds at 1-800-526-7384.
..All exchanges which represent an initial investment in a Fund must satisfy
the minimum initial investment requirements of that Fund.
..Exchanges are available only in states where exchanges may be legally made.
..It may be difficult to make telephone exchanges in times of drastic eco-
nomic or market conditions.
..Goldman Sachs and NFDS may use reasonable procedures described under "What
Do I Need To Know About Telephone Redemption Requests?" in an effort to
prevent unauthorized or fraudulent telephone exchange requests.
..Telephone exchanges normally will be made only to an identically registered
account. Shares may be exchanged among accounts with different names,
addresses and social security or other taxpayer identification numbers only
if the exchange instructions are in writing and accompanied by a signature
guarantee.
For federal income tax purposes, an exchange is treated as a redemption of
the shares surrendered in the exchange, on which you may be subject to tax,
followed by a purchase of shares received in the exchange. You should con-
sult your tax adviser concerning the tax consequences of an exchange.
SHAREHOLDER SERVICES
Can I Arrange To Have Automatic Investments Made On A Regular Basis?
You may be able to make systematic cash investments through your bank via
ACH transfer or your checking account via bank draft each month. Forms for
this option are available from Goldman Sachs, your Authorized Dealer or you
may check the appropriate box on the Account Application.
Can My Dividends And Distributions From A Fund Be Invested In Other Funds?
You may elect to cross-reinvest dividends and capital gain distributions
paid by a Fund in shares of the same class or an equivalent class of any
other Goldman Sachs Fund.
..Shares will be purchased at NAV.
..No initial sales charge or CDSC will be imposed.
..You may elect cross-reinvestment into an identically registered account or
an account registered in a different name or with a different address,
social security number or taxpayer identification number provided that the
account has
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SHAREHOLDER GUIDE
been properly established, appropriate signatures obtained and the minimum
initial investment has been satisfied.
Can I Arrange To Have Automatic Exchanges Made On A Regular Basis?
You may elect to exchange automatically a specified dollar amount of shares
of a Fund for shares of the same class or an equivalent class of any other
Goldman Sachs Fund.
..Shares will be purchased at NAV.
..No initial sales charge is imposed.
..Shares subject to a CDSC acquired under this program may be subject to a
CDSC at the time of redemption from the Fund into which the exchange is
made depending upon the date and value of your original purchase.
..Automatic exchanges are made monthly on the 15th day of each month or the
first business day thereafter.
..Minimum dollar amount: $50 per month.
What Else Should I Know About Cross-Reinvestments And Automatic Exchanges?
Cross-reinvestments and automatic exchanges are subject to the following
conditions:
..You must hold $5,000 or more in the Fund which is paying the dividend or
from which the exchange is being made.
..You must invest an amount in the Fund into which cross-reinvestments or
automatic exchanges are being made that is equal to that Fund's minimum
initial investment or continue to cross-reinvest or to make automatic
exchanges until such minimum initial investment is met.
..You should obtain and read the prospectus of the Fund into which dividends
are invested or automatic exchanges are made.
Can I Have Automatic Withdrawals Made On A Regular Basis?
You may draw on your account systematically via check or ACH transfer in any
amount of $50 or more.
..It is normally undesirable to maintain a systematic withdrawal plan at the
same time that you are purchasing additional Class A, Class B or Class C
Shares because of the sales charge imposed on your purchases of Class A
Shares or the imposition of a CDSC on your redemptions of Class A, Class B
or Class C Shares.
..You must have a minimum balance of $5,000 in a Fund.
..Checks are mailed on or about the 25th day of each month.
..Each systematic withdrawal is a redemption and therefore a taxable transac-
tion.
..The CDSC applicable to Class A, Class B or Class C Shares redeemed under
the systematic withdrawal plan may be waived.
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<PAGE>
What Types of Reports Will I Be Sent Regarding My Investment?
You will be provided with a printed confirmation of each transaction in your
account and an individual quarterly account statement. A year-to-date state-
ment for your account will be provided upon request made to Goldman Sachs.
If your account is held in "street name" you may receive your statement and
confirmations on a different schedule.
You will also receive an annual shareholder report containing audited finan-
cial statements and a semi-annual shareholder report. If you have consented
to the delivery of a single copy of shareholder reports, prospectuses and
other information to all shareholders who share the same mailing address
with your account, you may revoke your consent at any time by contacting
Goldman Sachs Funds by phone at 1-800-526-7384 or by mail at Goldman Sachs
Funds, 4900 Sears Tower--60th Floor, Chicago, IL 60606-6372. The Funds will
begin sending individual copies to you within 30 days after receipt of your
revocation.
The Funds do not generally provide sub-accounting services.
What Should I Know When I Purchase Shares Through An Authorized Dealer?
Authorized Dealers and other financial intermediaries may provide varying
arrangements for their clients to purchase and redeem Fund shares. They may
charge additional fees not described in this Prospectus to their customers
for such services.
If shares of a Fund are held in a "street name" account with an Authorized
Dealer, all recordkeeping, transaction processing and payments of distribu-
tions relating to your account will be performed by the Authorized Dealer,
and not by the Fund and its Transfer Agent. Since the Funds will have no
record of your transactions, you should contact the Authorized Dealer to
purchase, redeem or exchange shares, to make changes in or give instructions
concerning the account or to obtain information about your account. The
transfer of shares in a "street name" account to an account with another
dealer or to an account directly with the Fund involves special procedures
and will require you to obtain historical purchase information about the
shares in the account from the Authorized Dealer.
Authorized Dealers and other financial intermediaries may be authorized to
accept, on behalf of the Trust, purchase, redemption and exchange orders
placed by or on behalf of their customers, and if approved by the Trust, to
designate other intermediaries to accept such orders. In these cases:
..A Fund will be deemed to have received an order that is in proper form when
the order is accepted by an Authorized Dealer or intermediary on a business
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<PAGE>
SHAREHOLDER GUIDE
day, and the order will be priced at the Fund's NAV per share (adjusted for
any applicable sales charge) next determined after such acceptance.
..Authorized Dealers and intermediaries are responsible for transmitting
accepted orders to the Funds within the time period agreed upon by them.
You should contact your Authorized Dealer or intermediary to learn whether
it is authorized to accept orders for the Trust.
The Investment Adviser, Distributor and/or their affiliates may pay addi-
tional compensation from time to time, out of their assets and not as an
additional charge to the Funds, to selected Authorized Dealers and other
persons in connection with the sale, distribution and/or servicing of shares
of the Funds and other Goldman Sachs Funds. Additional compensation based on
sales may, but is currently not expected to, exceed 0.50% (annualized) of
the amount invested.
DISTRIBUTION SERVICES AND FEES
What Are the Different Distribution and Service Fees Paid by Class A, B and
C Shares?
The Trust has adopted distribution and service plans (each a "Plan") under
which Class A, Class B and Class C Shares bear distribution and service fees
paid to Authorized Dealers and Goldman Sachs. If the fees received by
Goldman Sachs pursuant to the Plans exceed its expenses, Goldman Sachs may
realize a profit from this arrangement. Goldman Sachs pays the distribution
and service fees on a quarterly basis.
Under the Plans, Goldman Sachs is entitled to a monthly fee from each Fund
for distribution services equal, on an annual basis, to 0.25%, 0.75% and
0.75%, respectively, of a Fund's average daily net assets attributed to
Class A, Class B and Class C Shares.* Because these fees are paid out of the
Fund's assets on an ongoing basis, over time, these fees will increase the
cost of your investment and may cost you more than paying other types of
such charges.
The distribution fees are subject to the requirements of Rule 12b-1 under
the Act, and may be used (among other things) for:
..Compensation paid to and expenses incurred by Authorized Dealers, Goldman
Sachs and their respective officers, employees and sales representatives;
..Commissions paid to Authorized Dealers;
..Allocable overhead;
..Telephone and travel expenses;
..Interest and other costs associated with the financing of such compensation
and expenses;
..Printing of prospectuses for prospective shareholders;
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<PAGE>
..Preparation and distribution of sales literature or advertising of any
type; and
..All other expenses incurred in connection with activities primarily
intended to result in the sale of Class A, Class B and Class C Shares.
In connection with the sale of Class C Shares, Goldman Sachs normally begins
paying the 0.75% distribution fee as an ongoing commission to Authorized
Dealers after the shares have been held for one year.
* Currently, Goldman Sachs voluntarily limits such fees to 0.60% of the
average daily net assets attributed to Class B Shares of the Short
Duration Government and the Short Duration Tax-Free Funds. Goldman Sachs
may modify or discontinue such waivers in the future at its discretion.
PERSONAL ACCOUNT MAINTENANCE SERVICES AND FEES
Under the Plans, Goldman Sachs is also entitled to receive a separate fee
equal on an annual basis to 0.25% of each Fund's average daily net assets
attributed to Class A (Global Income Fund only), Class B or Class C Shares.
This fee is for personal and account maintenance services, and may be used
to make payments to Goldman Sachs, Authorized Dealers and their officers,
sales representatives and employees for responding to inquiries of, and fur-
nishing assistance to, shareholders regarding ownership of their shares or
their accounts or similar services not otherwise provided on behalf of the
Funds. If the fees received by Goldman Sachs pursuant to the Plans exceed
its expenses, Goldman Sachs may realize a profit from this arrangement.
In connection with the sale of Class C Shares, Goldman Sachs normally begins
paying the 0.25% ongoing service fee to Authorized Dealers after the shares
have been held for one year. In connection with the sale of Class A and B
Shares of the Short Duration Government and Short Duration Tax-Free Funds,
Goldman Sachs normally begins paying the 0.25% ongoing service fee to Autho-
rized Dealers after the shares have been held for one year.
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<PAGE>
Taxation
TAXABILITY OF DISTRIBUTIONS
As with any investment, you should consider how your investment in the Funds
will be taxed. The tax information below is provided as general information.
More tax information is available in the Additional Statement. You should
consult your tax adviser about the federal, state, local or foreign tax con-
sequences of your investment in the Funds.
Unless your investment is an IRA or other tax-advantaged account, you should
consider the possible tax consequences of Fund distributions and the sale of
your Fund shares.
Taxes on Distributions: Except for exempt-interest dividends paid by the
Short Duration Tax-Free, Municipal Income and High Yield Municipal Funds,
distributions of investment income are taxable as ordinary income for fed-
eral tax purposes, and may also be subject to state or local taxes. This is
true whether you reinvest your distributions in additional Fund shares or
receive them in cash. Distributions from the Short Duration Tax-Free, Munic-
ipal Income and High Yield Municipal Funds that are designated as "exempt
interest dividends" are generally not subject to federal income tax (but may
be subject to state or local taxes). Distributions of short-term capital
gains are taxable to you as ordinary income. Any long-term capital gain dis-
tributions are taxable as long-term capital gains, no matter how long you
have owned your Fund shares.
Although distributions are generally treated as taxable to you in the year
they are paid, distributions declared in October, November or December but
paid in January are taxable as if they were paid in December. The Funds will
inform shareholders of the source and tax status of all distributions
promptly after the close of each calendar year.
The Core Fixed Income, Global Income and High Yield Funds may be subject to
foreign withholding or other foreign taxes on income or gain from certain
foreign securities. In general, the Funds may deduct these taxes in comput-
ing their taxable income. Shareholders of the Global Income Fund may be
entitled to claim a credit or a deduction with respect to foreign taxes if
the Fund elects to passthrough these taxes to you. Your January statement
will provide the relevant foreign tax information to you.
The Short Duration Tax-Free, Municipal Income and High Yield Municipal Funds
expect to distribute "exempt-interest dividends," attributable to tax-exempt
inter -
77
<PAGE>
est earned by those Funds. However, investments in tax-exempt bonds can also
result in the recognition of income or gain by a Fund, and thereby cause a
portion of the Fund's distributions to shareholders to be taxable. Thus, if
the value of a bond appreciates while the Fund owns it (aside from apprecia-
tion attributable to original issue discount on the bond), and the Fund then
sells the bond at a gain, that gain will generally not be exempt from tax--
whether or not the interest income on the bond is exempt. Gain recognized by
a Fund on sales of appreciated bonds will generally be short-term or long-
term capital gain depending on whether the Fund has held the bonds for more
than one year, but "market discount" bonds can cause the Fund to recognize
ordinary income. "Market discount" is a discount at which a bond is pur-
chased that is attributable to a decline in the value of a bond after its
original issuance. The market discount is then taken into account ratably
over the bond's remaining term to maturity, and the portion that accrues
during the Fund's holding period for the bond is generally treated as tax-
able ordinary income to the extent of any realized gain on the bond upon
disposition or maturity. Distributions attributable to ordinary income and
short-term capital gain recognized by the Short Duration Tax-Free, Municipal
Income and High Yield Municipal Funds will be taxable to you as ordinary
income. Distributions attributable to the excess of Fund net long-term capi-
tal gains over net short-term capital losses, and designated by the Fund as
"capital gain dividends," will be taxable to you as long-term capital gain.
You should note that a portion of the exempt-interest dividends paid by the
Short Duration Tax-Free, Municipal Income, and High Yield Municipal Funds
may be a
preference item when determining your federal alternative minimum tax lia-
bility. Exempt-interest dividends are also taken into account in determining
the taxable portion of social security or railroad retirement benefits. Any
interest on indebtedness incurred by you to purchase or carry shares in the
Short Duration Tax-Free, Municipal Income, and High Yield Municipal Funds
generally will not be deductible for federal income tax purposes.
TAXABILITY OF SALES AND EXCHANGES
Your sale of Fund shares is a taxable transaction for federal income tax
purposes, and may also be subject to state and local taxes. For tax purpos-
es, the exchange of your Fund shares for shares of a different Goldman Sachs
Fund is the same as a sale. When you sell your shares, you will generally
recognize a capital gain or loss in an amount equal to the difference
between your adjusted tax basis in the shares and the amount received. Gen-
erally, this gain or loss is long-term or short-term depending on whether
your holding period exceeds twelve months, except that any loss realized on
shares held for six months or less will be treated as a long-term capital
loss to the extent of any capital gain dividends that were
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<PAGE>
TAXATION
received on the shares. In addition, any loss realized on shares held for
six months or less will be disallowed to the extent of any exempt-interest
dividends that were received on the shares.
OTHER INFORMATION
When you open your account, you should provide your social security or tax
identification number on your Account Application. By law, each Fund must
withhold 31% of your taxable distributions and any redemption proceeds if
you do not provide your correct taxpayer identification number, or certify
that it is correct, or if the IRS instructs the Fund to do so. Non-U.S.
investors may be subject to U.S. withholding and estate tax.
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Appendix A
Additional Information on Portfolio Risks, Securities and Techniques
A. General Portfolio Risks
The Funds will be subject to the risks associated with fixed-income securi-
ties. These risks include interest rate risk, credit risk and call/extension
risk. In general, interest rate risk involves the risk that when interest
rates decline, the market value of fixed-income securities tends to increase
(although many mortgage related securities will have less potential than
other debt securities for capital appreciation during periods of declining
rates). Conversely, when interest rates increase, the market value of fixed-
income securities tends to decline. Credit risk involves the risk that the
issuer could default on its obligations, and a Fund will not recover its
investment. Call risk and extension risk are normally present in adjustable
rate mortgage loans ("ARMs"), Mortgage-Backed Securities and asset-backed
securities. For example, homeowners have the option to prepay their mort-
gages. Therefore, the duration of a security backed by home mortgages can
either shorten (call risk) or lengthen (extension risk). In general, if
interest rates on new mortgage loans fall sufficiently below the interest
rates on existing outstanding mortgage loans, the rate of prepayment would
be expected to increase. Conversely, if mortgage loan interest rates rise
above the interest rates on existing outstanding mortgage loans, the rate of
prepayment would be expected to decrease. In either case, a change in the
prepayment rate can result in losses to investors.
The Investment Adviser will not consider the portfolio turnover rate a lim-
iting factor in making investment decisions for a Fund. A high rate of port-
folio turnover (100% or more) involves correspondingly greater expenses
which must be borne by a Fund and its shareholders. The portfolio turnover
rate is calculated by dividing the lesser of the dollar amount of sales or
purchases of portfolio securities by the average monthly value of a Fund's
portfolio securities, excluding securities having a maturity at the date of
purchase of one year or less. See "Financial Highlights" in Appendix B for a
statement of the Funds' historical portfolio turnover rates.
The following sections provide further information on certain types of secu-
rities and investment techniques that may be used by the Funds, including
their associated risks. Additional information is provided in the Additional
Statement, which is available upon request. Among other things, the Addi-
tional Statement describes certain fundamental investment restrictions that
cannot be changed without shareholder approval. You should note, however,
that all investment objectives and
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APPENDIX A
policies not specifically designated as fundamental are non-fundamental and
may be changed without shareholder approval. If there is a change in a
Fund's investment objective, you should consider whether that Fund remains
an appropriate investment in light of your then current financial positions
and needs.
B. Other Portfolio Risks
Credit Risks. Debt securities purchased by the Funds may include securities
(including zero coupon bonds) issued by the U.S. government (and its agen-
cies, instrumentalities and sponsored enterprises), foreign governments,
domestic and foreign corporations, banks and other issuers. Some of these
fixed-income securities are described in the next section below. Further
information is provided in the Additional Statement.
Debt securities rated BBB or higher by Standard & Poor's or Baa or higher by
Moody's are considered "investment grade." Securities rated BBB or Baa are
considered medium-grade obligations with speculative characteristics, and
adverse economic conditions or changing circumstances may weaken their
issuers' capacity to pay interest and repay principal. A security will be
deemed to have met a rating requirement if it receives the minimum required
rating from at least one such rating organization even though it has been
rated below the minimum rating by one or more other rating organizations, or
if unrated by such rating organizations, determined by the Investment
Adviser to be of comparable credit quality.
Certain Funds may invest in fixed-income securities rated BB or Ba or below
(or comparable unrated securities) which are commonly referred to as "junk
bonds." Junk bonds are considered predominantly speculative and may be ques-
tionable as to principal and interest payments.
In some cases, junk bonds may be highly speculative, have poor prospects for
reaching investment grade standing and be in default. As a result, invest-
ment in such bonds will present greater speculative risks than those associ-
ated with investment in investment grade bonds. Also, to the extent that the
rating assigned to a security in a Fund's portfolio is downgraded by a rat-
ing organization, the market price and liquidity of such security may be
adversely affected.
Risks of Derivative Investments. A Fund's transactions in options, futures,
options on futures, swaps, interest rate caps, floors and collars, struc-
tured securities, inverse floating-rate securities, stripped mortgage-backed
securities and currency transactions involve additional risk of loss. Loss
can result from a lack of correlation between changes in the value of deriv-
ative instruments and the portfolio assets (if any) being hedged, the poten-
tial illiquidity of the markets for derivative instruments, or the risks
arising from margin requirements and related lever -
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age factors associated with such transactions. The use of these management
techniques also involves the risk of loss if the Investment Adviser is
incorrect in its expectation of fluctuations in securities prices, interest
rates or currency prices. Each Fund may also invest in derivative invest-
ments for non-hedging purposes (that is, to seek to increase total return),
which is considered a speculative practice and presents even greater risk of
loss.
Derivative Mortgage-Backed Securities (such as principal-only ("POs"),
interest-only ("IOs") or inverse floating rate securities) are particularly
exposed to call and extension risks. Small changes in mortgage prepayments
can significantly impact the cash flow and the market value of these securi-
ties. In general, the risk of faster than anticipated prepayments adversely
affects IOs, super floaters and premium priced Mortgage-Backed Securities.
The risk of slower than anticipated prepayments generally adversely affects
POs, floating-rate securities subject to interest rate caps, support
tranches and discount priced Mortgage-Backed Securities. In addition, par-
ticular derivative securities may be leveraged such that their exposure
(i.e., price sensitivity) to interest rate and/or prepayment risk is
magnified.
Some floating-rate derivative debt securities can present more complex types
of derivative and interest rate risks. For example, range floaters are sub-
ject to the risk that the coupon will be reduced below market rates if a
designated interest rate floats outside of a specified interest rate band or
collar. Dual index or yield curve floaters are subject to lower prices in
the event of an unfavorable change in the spread between two designated
interest rates.
Risks of Foreign Investments. Certain Funds may invest in foreign invest-
ments. Foreign investments involve special risks that are not typically
associated with U.S. dollar denominated or quoted securities of U.S.
issuers. Foreign investments may be affected by changes in currency rates,
changes in foreign or U.S. laws or restrictions applicable to such invest-
ments and changes in exchange control regulations (e.g., currency blockage).
A decline in the exchange rate of the currency (i.e., weakening of the cur-
rency against the U.S. dollar) in which a portfolio security is quoted or
denominated relative to the U.S. dollar would reduce the value of the port-
folio security. In addition, if the currency in which a Fund receives divi-
dends, interest or other payments declines in value against the U.S. dollar
before such income is distributed as dividends to shareholders or converted
to U.S. dollars, the Fund may have to sell portfolio securities to obtain
sufficient cash to pay such dividends.
The introduction of a single currency, the euro, on January 1, 1999 for par-
ticipating nations in the European Economic and Monetary Union presents
unique uncertainties, including the legal treatment of certain outstanding
financial contracts
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APPENDIX A
after January 1, 1999 that refer to existing currencies rather than the
euro; the establishment and maintenance of exchange rates for currencies
being converted into the euro; the fluctuation of the euro relative to non-
euro currencies during the transition period from January 1, 1999 to Decem-
ber 31, 2001 and beyond; whether the interest rate, tax and labor regimes of
European countries participating in the euro will converge over time; and
whether the conversion of the currencies of other countries that now are or
may in the future become members of the European Union ("EU"), may have an
impact on the euro. These or other factors, including political and economic
risks, could cause market disruptions, and could adversely affect the value
of securities held by the Funds. Because of the number of countries using
this single currency, a significant portion of the assets held by the Funds
may be denominated in the euro.
Brokerage commissions, custodial services and other costs relating to
investment in international securities markets generally are more expensive
than in the United States. In addition, clearance and settlement procedures
may be different in foreign countries and, in certain markets, such proce-
dures have been unable to keep pace with the volume of securities transac-
tions, thus making it difficult to conduct such transactions.
Foreign issuers are not generally subject to uniform accounting, auditing
and financial reporting standards comparable to those applicable to U.S.
issuers. There may be less publicly available information about a foreign
issuer than a U.S. issuer. In addition, there is generally less government
regulation of foreign markets, companies and securities dealers than in the
United States. Foreign securities markets may have substantially less volume
than U.S. securities markets and securities of many foreign issuers are less
liquid and more volatile than securities of comparable domestic issuers.
Furthermore, with respect to certain foreign countries, there is a possibil-
ity of nationalization, expropriation or confiscatory taxation, imposition
of withholding or other taxes on dividend or interest payments (or, in some
cases, capital gains), limitations on the removal of funds or other assets
of the Funds, and political or social instability or diplomatic developments
which could affect investments in those countries.
Concentration of a Fund's assets in one or a few countries and currencies
will subject a Fund to greater risks than if a Fund's assets were not geo-
graphically concentrated.
Investment in sovereign debt obligations by certain Funds involves risks not
present in debt obligations of corporate issuers. The issuer of the debt or
the governmental authorities that control the repayment of the debt may be
unable or unwilling to repay principal or interest when due in accordance
with the terms of such debt, and a Fund may have limited recourse to compel
payment in the event of a
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default. Periods of economic uncertainty may result in the volatility of
market prices of sovereign debt, and in turn a Fund's NAV, to a greater
extent than the volatility inherent in debt obligations of U.S. issuers.
A sovereign debtor's willingness or ability to repay principal and pay
interest in a timely manner may be affected by, among other factors, its
cash flow situation, the extent of its foreign currency reserves, the avail-
ability of sufficient foreign exchange on the date a payment is due, the
relative size of the debt service burden to the economy as a whole, the sov-
ereign debtor's policy toward international lenders, and the political
constraints to which a sovereign debtor may be subject.
Risks of Emerging Countries. Certain Funds may invest in securities of
issuers located in emerging countries. The risks of foreign investment are
heightened when the issuer is located in an emerging country. Emerging coun-
tries are generally located in the Asia-Pacific region, Eastern Europe,
Latin and South America and Africa. A Fund's purchase and sale of portfolio
securities in certain emerging countries may be constrained by limitations
as to daily changes in the prices of listed securities, periodic trading or
settlement volume and/or limitations on aggregate holdings of foreign
investors. Such limitations may be computed based on the aggregate trading
volume by or holdings of a Fund, the Investment Adviser, its affiliates and
their respective clients and other service providers. A Fund may not be able
to sell securities in circumstances where price, trading or settlement vol-
ume limitations have been reached.
Foreign investment in the securities markets of certain emerging countries
is restricted or controlled to varying degrees which may limit investment in
such countries or increase the administrative costs of such investments. For
example, certain Asian countries require governmental approval prior to
investments by foreign persons or limit investment by foreign persons to
only a specified percentage of an issuer's outstanding securities or a spe-
cific class of securities which may have less advantageous terms (including
price) than securities of the issuer available for purchase by nationals. In
addition, certain countries may restrict or prohibit investment opportuni-
ties in issuers or industries deemed important to national interests. Such
restrictions may affect the market price, liquidity and rights of securities
that may be purchased by a Fund. The repatriation of both investment income
and capital from certain emerging countries is subject to restrictions such
as the need for governmental consents. Due to restrictions on direct invest-
ment in equity securities in certain Asian countries, it is anticipated that
a Fund may invest in such countries through other investment funds in such
countries.
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APPENDIX A
Many emerging countries have experienced currency devaluations and substan-
tial (and, in some cases, extremely high) rates of inflation, which have had
a negative effect on the economies and securities markets of those emerging
countries. Economies in emerging countries generally are dependent heavily
upon commodity prices and international trade and, accordingly, have been
and may continue to be affected adversely by the economies of their trading
partners, trade barriers, exchange controls, managed adjustments in relative
currency values and other protectionist measures imposed or negotiated by
the countries with which they trade.
Many emerging countries are subject to a substantial degree of economic,
political and social instability. Governments of some emerging countries are
authoritarian in nature or have been installed or removed as a result of
military coups, while governments in other emerging countries have periodi-
cally used force to suppress civil dissent. Disparities of wealth, the pace
and success of democratization, and ethnic, religious and racial disaffec-
tion, among other factors, have also led to social unrest, violence and/or
labor unrest in some emerging countries. Unanticipated political or social
developments may result in sudden and significant investment losses. Invest-
ing in emerging countries involves greater risk of loss due to expropria-
tion, nationalization, confiscation of assets and property or the imposition
of restrictions on foreign investments and on repatriation of capital
invested.
A Fund's investment in emerging countries may also be subject to withholding
or other taxes, which may be significant and may reduce the return from an
investment in such country to the Fund.
Settlement procedures in emerging countries are frequently less developed
and reliable than those in the United States and often may involve a Fund's
delivery of securities before receipt of payment for their sale. In addi-
tion, significant delays are common in certain markets in registering the
transfer of securities. Settlement or registration problems may make it more
difficult for a Fund to value its portfolio securities and could cause the
Fund to miss attractive investment opportunities, to have a portion of its
assets uninvested or to incur losses due to the failure of a counterparty to
pay for securities the Fund has delivered or the Fund's inability to com-
plete its contractual obligations. The creditworthiness of the local securi-
ties firms used by a Fund in emerging countries may not be as sound as the
creditworthiness of firms used in more developed countries. As a result, the
Fund may be subject to a greater risk of loss if a securities firm defaults
in the performance of its responsibilities.
The small size and inexperience of the securities markets in certain emerg-
ing countries and the limited volume of trading in securities in those coun-
tries may make a Fund's investments in such countries less liquid and more
volatile than invest-
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ments in countries with more developed securities markets (such as the
United States, Japan and most Western European countries). A Fund's invest-
ments in emerging countries are subject to the risk that the liquidity of a
particular investment, or investments generally, in such countries will
shrink or disappear suddenly and without warning as a result of adverse eco-
nomic, market or political conditions or adverse investor perceptions,
whether or not accurate. Because of the lack of sufficient market liquidity,
a Fund may incur losses because it will be required to effect sales at a
disadvantageous time and then only at a substantial drop in price. Invest-
ments in emerging countries may be more difficult to price precisely because
of the characteristics discussed above and lower trading volumes.
A Fund's use of foreign currency management techniques in emerging countries
may be limited. Due to the limited market for these instruments in emerging
countries, the Investment Adviser does not currently anticipate that a sig-
nificant portion of the Funds' currency exposure in emerging countries, if
any, will be covered by such instruments.
Risks of Illiquid Securities. Each Fund may invest up to 15% of its net
assets in illiquid securities which cannot be disposed of in seven days in
the ordinary course of business at fair value. Illiquid securities include:
..Both domestic and foreign securities that are not readily marketable
..Certain municipal leases and participation interests
..Certain stripped Mortgage-Backed Securities
..Repurchase agreements and time deposits with a notice or demand period of
more than seven days
..Certain over-the-counter options
..Certain structured securities and all swap transactions
..Certain restricted securities, unless it is determined, based upon a review
of the trading markets for a specific restricted security, that such
restricted security is eligible for resale pursuant to Rule 144A under the
Securities Act of 1933 ("144A Securities") and, therefore, is liquid.
Investing in 144A Securities may decrease the liquidity of a Fund's portfo-
lio to the extent that qualified institutional buyers become for a time
uninterested in purchasing these restricted securities. The purchase price
and subsequent valuation of restricted and illiquid securities normally
reflect a discount, which may be significant, from the market price of com-
parable securities for which a liquid market exists.
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APPENDIX A
Temporary Investment Risks. Each Fund may, for temporary defensive purposes,
invest a certain percentage of its total assets in:
..U.S. Government Securities
..Repurchase agreements collateralized by U.S. Government Securities
Certain Funds may invest more than 20% of their respective net assets in
taxable investments and in investment grade securities for temporary defen-
sive purposes.
When a Fund's assets are invested in such instruments, the Fund may not be
achieving its investive objective.
C. Portfolio Securities and Techniques
This section provides further information on certain types of securities and
investment techniques that may be used by the Funds, including their associ-
ated risks. Further information is provided in the Additional Statement,
which is available upon request.
U.S. Government Securities and Related Custodial Receipts. Each Fund may
invest in U.S. Government Securities. U.S. Government Securities include
U.S. Treasury obligations and obligations issued or guaranteed by U.S. gov-
ernment agencies, instrumentalities or sponsored enterprises. U.S. Govern-
ment Securities may be supported by (a) the full faith and credit of the
U.S. Treasury (such as the Government National Mortgage Association ("Ginnie
Mae")); (b) the right of the issuer to borrow from the U.S. Treasury (such
as securities of the Student Loan Marketing Association); (c) the discre-
tionary authority of the U.S. government to purchase certain obligations of
the issuer (such as the Federal National Mortgage Association ("Fannie Mae")
and Federal Home Loan Mortgage Corporation ("Freddie Mac")); or (d) only the
credit of the issuer. U.S. Government Securities also include Treasury
receipts, zero coupon bonds and other stripped U.S. Government Securities,
where the interest and principal components of stripped U.S. Government
Securities are traded independently.
Interests in U.S. Government Securities may be purchased in the form of cus-
todial receipts that evidence ownership of future interest payments, princi-
pal payments or both on certain notes or bonds issued or guaranteed as to
principal and interest by the U.S. government, its agencies, instrumentali-
ties, political subdivisions or authorities. For certain securities law pur-
poses, custodial receipts are not considered obligations of the U.S. govern-
ment.
Mortgage-Backed Securities. Certain Funds may invest in Mortgage-Backed
Securities. Mortgage-Backed Securities represent direct or indirect partici-
pations in, or are collateralized by and payable from, mortgage loans
secured by real
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<PAGE>
property. Mortgage-Backed Securities can be backed by either fixed rate
mortgage loans or adjustable rate mortgage loans, and may be issued by
either a governmental or non-governmental entity. Privately issued Mortgage-
Backed Securities are normally structured with one or more types of "credit
enhancement." However, these Mortgage-Backed Securities typically do not
have the same credit standing as U.S. government guaranteed Mortgage-Backed
Securities.
Mortgage-Backed Securities may include multiple class securities, including
collateralized mortgage obligations ("CMOs") and Real Estate Mortgage
Investment Conduit ("REMIC") pass-through or participation certificates.
CMOs provide an investor with a specified interest in the cash flow from a
pool of underlying mortgages or of other Mortgage-Backed Securities. CMOs
are issued in multiple classes. In many cases, payments of principal are
applied to the CMO classes in the order of their respective stated maturi-
ties, so that no principal payments will be made on a CMO class until all
other classes having an earlier stated maturity date are paid in full. A
REMIC is a CMO that qualifies for special tax treatment under the Code and
invests in certain mortgages principally secured by interests in real prop-
erty and other permitted investments.
Mortgaged-Backed Securities also include stripped Mortgage-Backed Securities
("SMBS"), which are derivative multiple class Mortgage-Backed Securities.
SMBS are usually structured with two different classes: one that receives
substantially all of the interest payments and the other that receives sub-
stantially all of the principal payments from a pool of mortgage loans. The
market value of SMBS consisting entirely of principal payments generally is
unusually volatile in response to changes in interest rates. The yields on
SMBS that receive all or most of the interest from mortgage loans are gener-
ally higher than prevailing market yields on other Mortgage-Backed Securi-
ties because their cash flow patterns are more volatile and there is a
greater risk that the initial investment will not be fully recouped.
Asset-Backed Securities. Each Fund may invest in asset-backed securities.
Asset-backed securities are securities whose principal and interest payments
are collateralized by pools of assets such as auto loans, credit card
receivables, leases, installment contracts and personal property. Asset-
backed securities are often subject to more rapid repayment than their
stated maturity date would indicate as a result of the pass-through of pre-
payments of principal on the underlying loans. During periods of declining
interest rates, prepayment of loans underlying asset-backed securities can
be expected to accelerate. Accordingly, a Fund's ability to maintain posi-
tions in such securities will be affected by reductions in the principal
amount of such securities resulting from prepayments, and its ability to
reinvest the returns of principal at comparable yields is subject to gener-
ally prevailing interest rates at that
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APPENDIX A
time. Asset-backed securities present credit risks that are not presented by
Mortgage-Backed Securities. This is because asset-backed securities gener-
ally do not have the benefit of a security interest in collateral that is
comparable to mortgage assets. There is the possibility that, in some cases,
recoveries on repossessed collateral may not be available to support pay-
ments on these securities. In the event of a default, a Fund may suffer a
loss if it cannot sell collateral quickly and receive the amount it is owed.
Municipal Securities. Certain Funds may invest in securities and instruments
issued by state and local government issuers. Municipal Securities in which
a Fund may invest consist of bonds, notes, commercial paper and other
instruments (including participation interests in such securities) issued by
or on behalf of the states, territories and possessions of the United States
(including the District of Columbia) and their political subdivisions, agen-
cies or instrumentalities, the interest on which, in the opinion of bond
counsel for the issuers or counsel selected by the Investment Adviser, is
exempt from regular federal income tax (i.e., excluded from gross income for
federal income tax purposes but not necessarily exempt from federal alterna-
tive minimum tax or from state or local taxes). Because of their tax-exempt
status, the yields and market values of Municipal Securities may be more
adversely impacted by changes in tax rates and policies than taxable fixed-
income securities.
Municipal Securities include both "general" and "revenue" bonds and may be
issued to obtain funds for various purposes. General obligations are secured
by the issuer's pledge of its full faith, credit and taxing power. Revenue
obligations are payable only from the revenues derived from a particular
facility or class of facilities.
Municipal Securities are often issued to obtain funds for various public
purposes, including the construction of a wide range of public facilities
such as bridges, highways, housing, hospitals, mass transportation, schools,
streets and water and sewer works. Municipal Securities include private
activity bonds, pre-refunded municipal securities and auction rate securi-
ties.
The obligations of the issuer to pay the principal of and interest on a
Municipal Security are subject to the provisions of bankruptcy, insolvency
and other laws affecting the rights and remedies of creditors, such as the
Federal Bankruptcy Act, and laws, if any, that may be enacted by Congress or
state legislatures extending the time for payment of principal or interest
or imposing other constraints upon the enforcement of such obligations.
There is also the possibility that, as a result of litigation or other con-
ditions, the power or ability of the issuer to pay when due the principal of
or interest on a Municipal Security may be materially affected.
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In addition, Municipal Securities include municipal leases, certificates of
participation and "moral obligation" bonds. A municipal lease is an obliga-
tion issued by a state or local government to acquire equipment or facili-
ties. Certificates of participation represent interests in municipal leases
or other instruments, such as installment purchase agreements. Moral obliga-
tion bonds are supported by a moral commitment but not a legal obligation of
a state or local government. Municipal leases, certificates of participation
and moral obligation bonds frequently involve special risks not normally
associated with general obligation or revenue bonds. In particular, these
instruments permit governmental issuers to acquire property and equipment
without meeting constitutional and statutory requirements for the issuance
of debt. If, however, the governmental issuer does not periodically appro-
priate money to enable it to meet its payment obligations under these
instruments, it cannot be legally compelled to do so. If a default occurs,
it is likely that a Fund would be unable to obtain another acceptable source
of payment. Some municipal leases, certificates of participation and moral
obligation bonds may be illiquid.
Municipal Securities may also be in the form of a tender option bond, which
is a Municipal Security (generally held pursuant to a custodial arrangement)
having a relatively long maturity and bearing interest at a fixed rate sub-
stantially higher than prevailing short-term, tax-exempt rates. The bond is
typically issued with the agreement of a third party, such as a bank, bro-
ker-dealer or other financial institution, which grants the security holders
the option, at periodic intervals, to tender their securities to the insti-
tution. After payment of a fee to the financial institution that provides
this option, the security holder effectively holds a demand obligation that
bears interest at the prevailing short-term, tax-exempt rate. An institution
may not be obligated to accept tendered bonds in the event of certain
defaults or a significant downgrading in the credit rating assigned to the
issuer of the bond. The tender option will be taken into account in deter-
mining the maturity of the tender option bonds and a Fund's average portfo-
lio maturity. There is risk that a Fund will not be considered the owner of
a tender option bond for federal income tax purposes, and thus will not be
entitled to treat such interest as exempt from federal income tax. Certain
tender option bonds may be illiquid.
Municipal Securities may be backed by letters of credit or other forms of
credit enhancement issued by domestic banks or foreign banks which have a
branch, agency or subsidiary in the United States or by other financial
institutions. The credit quality of these banks and financial institutions
could, therefore, cause a loss to a Fund that invests in Municipal Securi-
ties. Letters of credit and other obligations of foreign banks and financial
institutions may involve risks in addition to those of domestic obligations
because of less publicly available financial and other information, less
securities regulation, potential imposition of foreign withholding and other
taxes, war, expropriation or other adverse governmental
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APPENDIX A
actions. Foreign banks and their foreign branches are not regulated by U.S.
banking authorities, and are generally not bound by the accounting, auditing
and financial reporting standards applicable to U.S. banks.
Corporate Debt Obligations; Trust Preferred Securities; Convertible Securi-
ties. Certain Funds may invest in corporate debt obligations, trust pre-
ferred securities and convertible securities. Corporate debt obligations
include bonds, notes, debentures, commercial paper and other obligations of
corporations to pay interest and repay principal, and include securities
issued by banks and other financial institutions. A trust preferred security
is a long dated bond (for example, 30 years) with preferred features. The
preferred features are that payment of interest can be deferred for a speci-
fied period without initiating a default event. The securities are generally
senior in claim to standard preferred stock but junior to other bondholders.
Convertible securities are preferred stock or debt obligations that are con-
vertible into common stock. Convertible securities generally offer lower
interest or dividend yields than non-convertible securities of similar qual-
ity. Convertible securities in which a Fund invests are subject to the same
rating criteria as its other investments in fixed-income securities. Con-
vertible securities have both equity and fixed-income risk characteristics.
Like all fixed-income securities, the value of convertible securities is
susceptible to the risk of market losses attributable to changes in interest
rates. Generally, the market value of convertible securities tends to
decline as interest rates increase and, conversely, to increase as interest
rates decline. However, when the market price of the common stock underlying
a convertible security exceeds the conversion price of the convertible secu-
rity, the convertible security tends to reflect the market price of the
underlying common stock. As the market price of the underlying common stock
declines, the convertible security, like a fixed-income security, tends to
trade increasingly on a yield basis, and thus may not decline in price to
the same extent as the underlying common stock.
Foreign Currency Transactions. Certain Funds may, to the extent consistent
with their investment policies, purchase or sell foreign currencies on a
cash basis or through forward contracts. A forward contract involves an
obligation to purchase or sell a specific currency at a future date at a
price set at the time of the contract. Certain Funds may engage in foreign
currency transactions for hedging purposes and to seek to protect against
anticipated changes in future foreign currency exchange rates. In addition,
certain Funds also may enter into such transactions to seek to increase
total return, which is considered a speculative practice.
Some Funds may also engage in cross-hedging by using forward contracts in a
currency different from that in which the hedged security is denominated or
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quoted if the Investment Adviser determines that there is a pattern of cor-
relation between the two currencies. A Fund may hold foreign currency
received in connection with investments in foreign securities when, in the
judgment of the Investment Adviser, it would be beneficial to convert such
currency into U.S. dollars at a later date (e.g., the Investment Adviser may
anticipate the foreign currency to appreciate against the U.S. dollar).
Currency exchange rates may fluctuate significantly over short periods of
time, causing, along with other factors, a Fund's NAV to fluctuate (when the
Fund's NAV fluctuates, the value of your shares may go up or down). Currency
exchange rates also can be affected unpredictably by the intervention of
U.S. or foreign governments or central banks, or the failure to intervene,
or by currency controls or political developments in the United States or
abroad.
The market in forward foreign currency exchange contracts, currency swaps
and other privately negotiated currency instruments offers less protection
against defaults by the other party to such instruments than is available
for currency instruments traded on an exchange. Such contracts are subject
to the risk that the counterparty to the contract will default on its obli-
gations. Since these contracts are not guaranteed by an exchange or clear-
inghouse, a default on a contract would deprive a Fund of unrealized prof-
its, transaction costs or the benefits of a currency hedge or could force
the Fund to cover its purchase or sale commitments, if any, at the current
market price.
Structured Securities and Inverse Floaters. Certain Funds may invest in
structured securities. Structured securities are securities whose value is
determined by reference to changes in the value of specific currencies,
interest rates, commodities, indices or other financial indicators (the
"Reference") or the relative change in two or more References. The interest
rate or the principal amount payable upon maturity or redemption may be
increased or decreased depending upon changes in the applicable Reference.
Structured securities may be positively or negatively indexed, so that
appreciation of the Reference may produce an increase or decrease in the
interest rate or value of the security at maturity. In addition, changes in
the interest rates or the value of the security at maturity may be a multi-
ple of changes in the value of the Reference. Consequently, structured secu-
rities may present a greater degree of market risk than other types of
fixed-income securities, and may be more volatile, less liquid and more dif-
ficult to price accurately than less complex securities.
Structured securities include, but are not limited to, inverse floating rate
debt securities ("inverse floaters"). The interest rate on inverse floaters
resets in the opposite direction from the market rate of interest to which
the inverse floater is indexed. An inverse floater may be considered to be
leveraged to the extent that
92
<PAGE>
APPENDIX A
its interest rate varies by a magnitude that exceeds the magnitude of the
change in the index rate of interest. The higher the degree of leverage of
an inverse floater, the greater the volatility of its market value.
Zero Coupon, Deferred Interest, Pay-In-Kind and Capital Appreciation Bonds.
Each Fund may invest in zero coupon, deferred interest, pay-in-kind and cap-
ital appreciation bonds are issued at a discount from their face value
because interest payments are typically postponed until maturity. Pay-in-
kind securities are securities that have interest payable by the delivery of
additional securities. The market prices of these securities generally are
more volatile than the market prices of interest-bearing securities and are
likely to respond to a greater degree to changes in interest rates than
interest-bearing securities having similar maturities and credit quality.
Mortgage Dollar Rolls. Certain Funds may enter into mortgage dollar rolls. A
mortgage dollar roll involves the sale by a Fund of securities for delivery
in the current month. The Fund simultaneously contracts with the same
counterparty to repurchase substantially similar (same type, coupon and
maturity) but not identical securities on a specified future date. During
the roll period, the Fund loses the right to receive principal and interest
paid on the securities sold. However, the Fund benefits to the extent of any
difference between (a) the price received for the securities sold and (b)
the lower forward price for the future purchase and/or fee income plus the
interest earned on the cash proceeds of the securities sold. Unless the ben-
efits of a mortgage dollar roll exceed the income, capital appreciation and
gain or loss due to mortgage prepayments that would have been realized on
the securities sold as part of the roll, the use of this technique will
diminish the Fund's performance.
Successful use of mortgage dollar rolls depends upon the Investment Advis-
er's ability to predict correctly interest rates and mortgage prepayments.
If the Investment Adviser is incorrect in its prediction, a Fund may experi-
ence a loss. For financial reporting and tax purposes, the Funds treat mort-
gage dollar rolls as two separate transactions: one involving the purchase
of a security and a separate transaction involving a sale. The Funds do not
currently intend to enter into mortgage dollar rolls that are accounted for
as a financing and do not treat them as borrowings.
Options on Securities, Securities Indices and Foreign Currencies. A put
option gives the purchaser of the option the right to sell, and the writer
(seller) of the option the obligation to buy, the underlying instrument dur-
ing the option period. A call option gives the purchaser of the option the
right to buy, and the writer (seller) of the option the obligation to sell,
the underlying instrument during the option period. Each Fund may write
(sell) covered call and put options and pur-
93
<PAGE>
chase put and call options on any securities in which it may invest or on
any securities index comprised of securities in which it may invest. A Fund
may also, to the extent that it invests in foreign securities, purchase and
sell (write) put and call options on foreign currencies.
The writing and purchase of options is a highly specialized activity which
involves special investment risks. Options may be used for either hedging or
cross-hedging purposes, or to seek to increase total return (which is con-
sidered a speculative activity). The successful use of options depends in
part on the ability of the Investment Adviser to manage future price fluctu-
ations and the degree of correlation between the options and securities (or
currency) markets. If the Investment Adviser is incorrect in its expectation
of changes in market prices or determination of the correlation between the
instruments or indices on which options are written and purchased and the
instruments in a Fund's investment portfolio, the Fund may incur losses that
it would not otherwise incur. The use of options can also increase a Fund's
transaction costs. Options written or purchased by the Funds may be traded
on either U.S. or foreign exchanges or over-the- counter. Foreign and over-
the-counter options will present greater possibility of loss because of
their greater illiquidity and credit risks.
Yield Curve Options. Each Fund may enter into options on the yield "spread"
or differential between two securities. Such transactions are referred to as
"yield curve" options. In contrast to other types of options, a yield curve
option is based on the difference between the yields of designated securi-
ties, rather than the prices of the individual securities, and is settled
through cash payments. Accordingly, a yield curve option is profitable to
the holder if this differential widens (in the case of a call) or narrows
(in the case of a put), regardless of whether the yields of the underlying
securities increase or decrease.
The trading of yield curve options is subject to all of the risks associated
with the trading of other types of options. In addition, such options pres-
ent a risk of loss even if the yield of one of the underlying securities
remains constant, or if the spread moves in a direction or to an extent
which was not anticipated.
Futures Contracts and Options on Futures Contracts. Futures contracts are
standardized, exchange-traded contracts that provide for the sale or pur-
chase of a specified financial instrument or currency at a future time at a
specified price. An option on a futures contract gives the purchaser the
right (and the writer of the option the obligation) to assume a position in
a futures contract at a specified exercise price within a specified period
of time. A futures contract may be based on various securities (such as U.S.
Government Securities), foreign currencies, securities indices and other
financial instruments and indices. The Funds may engage in futures transac-
tions on both U.S. and foreign exchanges.
94
<PAGE>
APPENDIX A
Each Fund may purchase and sell futures contracts, and purchase and write
call and put options on futures contracts, in order to seek to increase
total return or to hedge against changes in interest rates, securities
prices or, to the extent a Fund invests in foreign securities, currency
exchange rates, or to otherwise manage their term structures, sector selec-
tion and durations in accordance with their investment objectives and poli-
cies. Each Fund may also enter into closing purchase and sale transactions
with respect to such contracts and options. A Fund will engage in futures
and related options transactions for bona fide hedging purposes as defined
in regulations of the Commodity Futures Trading Commission or to seek to
increase total return to the extent permitted by such regulations. A Fund
may not purchase or sell futures contracts or purchase or sell related
options to seek to increase total return, except for closing purchase or
sale transactions, if immediately thereafter the sum of the amount of ini-
tial margin deposits and premiums paid on the Fund's outstanding positions
in futures and related options entered into for the purpose of seeking to
increase total return would exceed 5% of the market value of the Fund's net
assets.
Futures contracts and related options present the following risks:
..While a Fund may benefit from the use of futures and options on futures,
unanticipated changes in interest rates, securities prices or currency
exchange rates may result in poorer overall performance than if the Fund
had not entered into any futures contracts or options transactions.
..Because perfect correlation between a futures position and portfolio posi-
tion that is intended to be protected is impossible to achieve, the desired
protection may not be obtained and a Fund may be exposed to additional risk
of loss.
..The loss incurred by a Fund in entering into futures contracts and in writ-
ing call options on futures is potentially unlimited and may exceed the
amount of the premium received.
..Futures markets are highly volatile and the use of futures may increase the
volatility of a Fund's NAV.
..As a result of the low margin deposits normally required in futures trad-
ing, a relatively small price movement in a futures contract may result in
substantial losses to a Fund.
..Futures contracts and options on futures may be illiquid, and exchanges may
limit fluctuations in futures contract prices during a single day.
..Foreign exchanges may not provide the same protection as U.S. exchanges.
When-Issued Securities and Forward Commitments. Each Fund may purchase when-
issued securities and enter into forward commitments. When-issued securities
are securities that have been authorized, but not yet issued. When-issued
securities are purchased in order to secure what is considered to be an
advantageous price and yield to the Fund at the time of entering into the
transaction. A forward
95
<PAGE>
commitment involves entering into a contract to purchase or sell securities
for a fixed price at a future date beyond the customary settlement period.
The purchase of securities on a when-issued or forward commitment basis
involves a risk of loss if the value of the security to be purchased
declines before the settlement date. Conversely, the sale of securities on a
forward commitment basis involves the risk that the value of the securities
sold may increase before the settlement date. Although a Fund will generally
purchase securities on a when-issued or forward commitment basis with the
intention of acquiring the securities for its portfolio, a Fund may dispose
of when-issued securities or forward commitments prior to settlement if the
Investment Adviser deems it appropriate.
Lending of Portfolio Securities. Each Fund may engage in securities lending.
Securities lending involves the lending of securities owned by a Fund to
financial institutions such as certain broker-dealers. The borrowers are
required to secure their loans continuously with cash, cash equivalents,
U.S. Government Securities or letters of credit in an amount at least equal
to the market value of the securities loaned. Cash collateral may be
invested in cash equivalents. To the extent that cash collateral is invested
in other investment securities, such collateral will be subject to market
depreciation or appreciation, and a Fund will be responsible for any loss
that might result from its investment of the borrowers' collateral. If the
Investment Adviser determines to make securities loans, the value of the
securities loaned may not exceed 33 1/3% of the value of the total assets of
a Fund (including the loan collateral).
A Fund may lend its securities to increase its income. A Fund may, however,
experience delay in the recovery of its securities, or capital loss, if the
institution with which it has engaged in a portfolio loan transaction
breaches its agreement with the Fund.
Repurchase Agreements. Repurchase agreements involve the purchase of securi-
ties subject to the seller's agreement to repurchase them at a mutually
agreed upon date and price. Each Fund may enter into repurchase agreements
with dealers in U.S. Government Securities and member banks of the Federal
Reserve System which furnish collateral at least equal in value or market
price to the amount of their repurchase obligation. Some Funds may also
enter into repurchase agreements involving certain foreign government secu-
rities.
If the other party or "seller" defaults, a Fund might suffer a loss to the
extent that the proceeds from the sale of the underlying securities and
other collateral held by the Fund are less than the repurchase price and the
Fund's costs associated with delay and enforcement of the repurchase agree-
ment. In addition, in the event of bankruptcy of the seller, a Fund could
suffer additional losses if a court determines that the Fund's interest in
the collateral is not enforceable.
96
<PAGE>
APPENDIX A
In evaluating whether to enter into a repurchase agreement, the Investment
Adviser will carefully consider the creditworthiness of the seller. Certain
Funds, together with other registered investment companies having advisory
agreements with the Investment Adviser or any of its affiliates, may trans-
fer uninvested cash balances into a single joint account, the daily aggre-
gate balance of which will be invested in one or more repurchase agreements.
Borrowings and Reverse Repurchase Agreements. Each Fund can borrow money
from banks and enter into reverse repurchase agreements with banks and other
financial institutions in amounts not exceeding one-third of its total
assets. A Fund may not make additional investments if borrowings exceed 5%
of its total assets. Reverse repurchase agreements involve the sale of secu-
rities held by a Fund subject to the Fund's agreement to repurchase them at
a mutually agreed upon date and price (including interest). These transac-
tions may be entered into as a temporary measure for emergency purposes or
to meet redemption requests. Reverse repurchase agreements may also be
entered into when the Investment Adviser expects that the interest income to
be earned from the investment of the transaction proceeds will be greater
than the related interest expense. Borrowings and reverse repurchase agree-
ments involve leveraging. If the securities held by a Fund decline in value
while these transactions are outstanding, the NAV of the Fund's outstanding
shares will decline in value by proportionately more than the decline in
value of the securities. In addition, reverse repurchase agreements involve
the risk that the interest income earned by a Fund (from the investment of
the proceeds) will be less than the interest expense of the transaction,
that the market value of the securities sold by a Fund will decline below
the price the Fund is obligated to pay to repurchase the securities, and
that the securities may not be returned to the Fund.
Interest Rate Swaps, Mortgage Swaps, Credit Swaps, Currency Swaps and Inter-
est Rate Caps, Floors and Collars. Interest rate swaps involve the exchange
by a Fund with another party of their respective commitments to pay or
receive interest, such as an exchange of fixed-rate payments for floating
rate payments. Mortgage swaps are similar to interest rate swaps in that
they represent commitments to pay and receive interest. The notional princi-
pal amount, however, is tied to a reference pool or pools of mortgages.
Credit swaps involve the receipt of floating or fixed rate payments in
exchange for assuming potential credit losses of an underlying security.
Credit swaps give one party to a transaction the right to dispose of or
acquire an asset (or group of assets), or the right to receive or make a
payment from the other party, upon the occurrence of specified credit
events. Currency swaps involve the exchange of the parties' respective
rights to make or receive payments in specified currencies. The purchase of
an interest rate cap entitles the purchaser, to the extent that a specified
index exceeds a predetermined interest
97
<PAGE>
rate, to receive payment of interest on a notional principal amount from the
party selling such interest rate cap. The purchase of an interest rate floor
entitles the purchaser, to the extent that a specified index falls below a
predetermined interest rate, to receive payments of interest on a notional
principal amount from the party selling the interest rate floor. An interest
rate collar is the combination of a cap and a floor that preserves a certain
return within a predetermined range of interest rates.
Each Fund may enter into swap transactions for hedging purposes or to seek
to increase total return. The use of interest rate, mortgage, credit and
currency swaps, as well as interest rate caps, floors and collars, is a
highly specialized activity which involves investment techniques and risks
different from those associated with ordinary portfolio securities transac-
tions. If the Investment Adviser is incorrect in its forecasts of market
values, interest rates and currency exchange rates, the investment perfor-
mance of a Fund would be less favorable than it would have been if these
investment techniques were not used.
Other Investment Companies. Each Fund may invest in securities of other
investment companies subject to statutory limitations prescribed by the Act.
These limitations include a prohibition on any Fund acquiring more than 3%
of the voting shares of any other investment company, and a prohibition on
investing more than 5% of a Fund's total assets in securities of any one
investment company or more than 10% of its total assets in securities of all
investment companies. A Fund will indirectly bear its proportionate share of
any management fees and other expenses paid by such other investment compa-
nies. Such other investment companies will have investment objectives, poli-
cies and restrictions substantially similar to those of the acquiring Fund
and will be subject to substantially the same risks.
Non-Investment Grade Fixed-Income Securities. Non-investment grade fixed-
income securities and unrated securities of comparable credit quality (com-
monly known as "junk bonds") are considered predominantly speculative by
traditional investment standards. In some cases, these obligations may be
highly speculative and have poor prospects for reaching investment grade
standing. Non-investment grade fixed-income securities are subject to the
increased risk of an issuer's inability to meet principal and interest obli-
gations. These securities, also referred to as high yield securities, may be
subject to greater price volatility due to such factors as specific corpo-
rate or municipal developments, interest rate sensitivity, negative percep-
tions of the junk bond markets generally and less secondary market
liquidity.
Non-investment grade fixed-income securities are often issued in connection
with a corporate reorganization or restructuring or as part of a merger,
acquisition, takeover or similar event. They are also issued by less estab-
lished companies seek
98
<PAGE>
APPENDIX A
ing to expand. Such issuers are often highly leveraged and generally less
able than more established or less leveraged entities to make scheduled pay-
ments of principal and interest in the event of adverse developments or
business conditions. Non-investment grade securities are also issued by
state, city, or local municipalities that may have difficulty in making all
scheduled interest and principal payments.
The market value of non-investment grade fixed-income securities tends to
reflect individual corporate or municipal developments to a greater extent
than that of higher rated securities which react primarily to fluctuations
in the general level of interest rates. As a result, a Fund's ability to
achieve its investment objectives may depend to a greater extent on the
Investment Adviser's judgment concerning the creditworthiness of issuers
than funds which invest in higher-rated securities. Issuers of non-invest-
ment grade fixed-income securities may not be able to make use of more tra-
ditional methods of financing and their ability to service debt obligations
may be affected more adversely than issuers of higher-rated securities by
economic downturns, specific corporate or financial developments or the
issuer's inability to meet specific projected business forecasts. Negative
publicity about the junk bond market and investor perceptions regarding
lower rated securities, whether or not based on fundamental analysis, may
depress the prices for such securities.
A holder's risk of loss from default is significantly greater for non-
investment grade fixed-income securities than is the case for holders of
other debt securities because such non-investment grade securities are gen-
erally unsecured and are often subordinated to the rights of other creditors
of the issuers of such securities. Investment by a Fund in defaulted securi-
ties poses additional risk of loss should nonpayment of principal and inter-
est continue in respect of such securities. Even if such securities are held
to maturity, recovery by a Fund of its initial investment and any antici-
pated income or appreciation is uncertain.
The secondary market for non-investment grade fixed-income securities is
concentrated in relatively few market makers and is dominated by institu-
tional investors, including mutual funds, insurance companies and other
financial institutions. Accordingly, the secondary market for such securi-
ties is not as liquid as, and is more volatile than, the secondary market
for higher-rated securities. In addition, market trading volume for high
yield fixed-income securities is generally lower and the secondary market
for such securities could shrink or disappear suddenly and without warning
as a result of adverse market or economic conditions, independent of any
specific adverse changes in the condition of a particular issuer. Because of
the lack of sufficient market liquidity, a Fund may incur losses because it
will be required to effect sales at a disadvantageous time and then only at
a substantial drop in price. These factors may have an adverse effect on the
market price and a Fund's ability to dispose of particular portfolio invest-
ments. A
99
<PAGE>
less liquid secondary market also may make it more difficult for a Fund to
obtain precise valuations of the high yield securities in its portfolio.
Credit ratings issued by credit rating agencies are designed to evaluate the
safety of principal and interest payments of rated securities. They do not,
however, evaluate the market value risk of non-investment grade securities
and, therefore, may not fully reflect the true risks of an investment. In
addition, credit rating agencies may or may not make timely changes in a
rating to reflect changes in the economy or in the conditions of the issuer
that affect the market value of the security. Consequently, credit ratings
are used only as a preliminary indicator of investment quality.
Loan Participations. Certain Funds may invest in loan participations. A loan
participation is an interest in a loan to a U.S. or foreign company or other
borrower which is administered and sold by a financial intermediary. A Fund
may only invest in loans to issuers in whose obligations it may otherwise
invest. Loan participation interests may take the form of a direct or co-
lending relationship with the corporate borrower, an assignment of an inter-
est in the loan by a co-lender or another participant, or a participation in
the seller's share of the loan. When a Fund acts as co-lender in connection
with a participation interest or when it acquires certain participation
interests, the Fund will have direct recourse against the borrower if the
borrower fails to pay scheduled principal and interest. In cases where the
Fund lacks direct recourse, it will look to an agent for the lenders (the
"agent lender") to enforce appropriate credit remedies against the borrower.
In these cases, the Fund may be subject to delays, expenses and risks that
are greater than those that would have been involved if the Fund had pur-
chased a direct obligation (such as commercial paper) of such borrower.
Moreover, under the terms of the loan participation, the Fund may be
regarded as a creditor of the agent lender (rather than of the underlying
corporate borrower), so that the Fund may also be subject to the risk that
the agent lender may become insolvent.
Preferred Stock, Warrants and Rights. Certain Funds may invest in preferred
stock, warrants and rights. Preferred stocks are securities that represent
an ownership interest providing the holder with claims on the issuer's earn-
ings and assets before common stock owners but after bond owners. Unlike
debt securities, the obligations of an issuer of preferred stock, including
dividend and other payment obligations, may not typically be accelerated by
the holders of such preferred stock on the occurrence of an event of default
or other non-compliance by the issuer of the preferred stock.
Warrants and other rights are options to buy a stated number of shares of
common stock at a specified price at any time during the life of the warrant
or right. The holders of warrants and rights have no voting rights, receive
no dividends and have no rights with respect to the assets of the issuer.
100
<PAGE>
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101
<PAGE>
Appendix B
Financial Highlights
The financial highlights tables are intended to help you understand a Fund's
financial performance for the past five years (or less if the Fund has been
in operation for less than five years). Certain information reflects finan-
cial results for a single Fund share. The total returns in the table repre-
sent the rate that an investor would have earned or lost on an investment in
a Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by Arthur Andersen LLP, whose report, along
with a Fund's financial statements, is included in the Fund's annual report
(available upon request without charge). No financial highlights are
included for the High Yield Municipal Fund because it had no operating his-
tory prior to the date of this Prospectus.
ADJUSTABLE RATE GOVERNMENT FUND
<TABLE>
<CAPTION>
Income (loss) from
investment operations/a/
-------------------------
Net asset
value, Net Net realized
beginning investment and unrealized
of period income gain (loss)
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
For the Years Ended October 31,
1999 - Class A Shares $9.69 $0.49 $(0.05)
1999 - Institutional Shares 9.70 0.53 (0.05)
1999 - Administration Shares/g/ 9.70 0.37/f/ 0.01/f/
1999 - Service Shares 9.70 0.48 (0.04)
- -------------------------------------------------------------------------------
1998 - Class A Shares 9.88 0.53 (0.17)
1998 - Institutional Shares 9.88 0.55 (0.16)
1998 - Administration Shares 9.88 0.53 (0.16)
1998 - Service Shares 9.88 0.51 (0.16)
- -------------------------------------------------------------------------------
1997 - Class A Shares 9.83 0.57/f/ 0.05/f/
1997 - Institutional Shares 9.83 0.59/f/ 0.05/f/
1997 - Administration Shares 9.83 0.57/f/ 0.05/f/
1997 - Service Shares (commenced March 27) 9.84 0.33/f/ 0.04/f/
- -------------------------------------------------------------------------------
1996 - Class A Shares 9.77 0.55/f/ 0.08/f/
1996 - Institutional Shares 9.77 0.57/f/ 0.08/f/
1996 - Administration Shares 9.77 0.55/f/ 0.08/f/
- -------------------------------------------------------------------------------
1995 - Class A Shares (commenced May 15) 9.79 0.27/f/ (0.01)/f/
1995 - Institutional Shares 9.74 0.56/f/ 0.07/f/
1995 - Administration Shares 9.74 0.54/f/ 0.07/f/
- -------------------------------------------------------------------------------
</TABLE>
(a) Includes the balancing effect of calculating per share amounts.
(b) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all distributions, a complete redemption of the investment
at the net asset value at the end of period and no sales charge. Total
return would be reduced if a sales or redemption charge were taken into
account.
(c) Annualized.
(d) Not annualized.
(e) Includes the effect of mortgage dollar roll transactions.
(f) Calculated based on the average shares outstanding methodology.
(g) Administration Shares were liquidated on July 20, 1999. Ending net asset
value shown as of July 20, 1999.
102
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Distributions
to shareholders
--------------------------------
In excess Net increase Net asset Net assets Ratio of net
From net of net (decrease) value, at end of expenses
investment investment From in net end of Total period to average
income income capital asset value period returnb (in 000s) net assets
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$(0.44) $ -- $(0.06) $(0.06) $9.63 4.65% $ 22,862 0.89%
(0.48) -- (0.06) (0.06) 9.64 5.06 315,024 0.49
(0.33) -- (0.04) 0.01 9.71g 4.02d -- 0.74c
(0.43) -- (0.06) (0.05) 9.65 4.65 797 0.99
- -----------------------------------------------------------------------------------------
(0.53) (0.02) -- (0.19) 9.69 3.71 60,782 0.80
(0.55) (0.02) -- (0.18) 9.70 4.09 441,228 0.53
(0.53) (0.02) -- (0.18) 9.70 3.83 5,999 0.78
(0.51) (0.02) -- (0.18) 9.70 3.57 822 1.03
- -----------------------------------------------------------------------------------------
(0.57) -- -- 0.05 9.88 6.43 43,393 0.74
(0.59) -- -- 0.05 9.88 6.70 463,511 0.49
(0.57) -- -- 0.05 9.88 6.43 2,793 0.74
(0.33) -- -- 0.04 9.88 3.81d 346 1.05c
- -----------------------------------------------------------------------------------------
(0.55) (0.02) -- 0.06 9.83 6.60 10,728 0.70
(0.57) (0.02) -- 0.06 9.83 6.86 613,149 0.45
(0.55) (0.02) -- 0.06 9.83 6.60 3,792 0.70
- -----------------------------------------------------------------------------------------
(0.27) (0.01) -- (0.02) 9.77 2.74d 15,203 0.69c
(0.57) (0.03) -- 0.03 9.77 6.75 657,358 0.46
(0.55) (0.03) -- 0.03 9.77 6.48 3,572 0.71
- -----------------------------------------------------------------------------------------
</TABLE>
103
<PAGE>
ADJUSTABLE RATE GOVERNMENT FUND (continued)
<TABLE>
<CAPTION>
Ratios assuming
no voluntary waiver
of fees or
expense limitations
---------------------
Ratio of Ratio of
net net
investment Ratio of investment
income expenses income Portfolio
to average to average to average turnover
net assets net assets net assets ratee
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
For the Years Ended October 31,
1999 - Class A Shares 5.15% 0.93% 5.11% 38.86%
1999 - Institutional Shares 5.49 0.53 5.45 38.86
1999 - Administration Sharesg 5.35c 0.78c 5.31c 38.86
1999 - Service Shares 4.99 1.03 4.95 38.86
- ----------------------------------------------------------------------------
1998 - Class A Shares 5.40 1.02 5.18 33.64
1998 - Institutional Shares 5.63 0.53 5.63 33.64
1998 - Administration Shares 5.33 0.78 5.33 33.64
1998 - Service Shares 5.09 1.03 5.09 33.64
- ----------------------------------------------------------------------------
1997 - Class A Shares 5.60 1.02 5.32 46.58
1997 - Institutional Shares 5.99 0.52 5.96 46.58
1997 - Administration Shares 5.73 0.77 5.70 46.58
1997 - Service Shares (commenced
March 27) 5.64c 1.08c 5.61c 46.58
- ----------------------------------------------------------------------------
1996 - Class A Shares 5.59 1.01 5.28 52.36
1996 - Institutional Shares 5.85 0.51 5.79 52.36
1996 - Administration Shares 5.59 0.76 5.53 52.36
- ----------------------------------------------------------------------------
1995 - Class A Shares (commenced
May 15) 5.87c 1.01c 5.55c 24.12
1995 - Institutional Shares 5.77 0.53 5.70 24.12
1995 - Administration Shares 5.50 0.78 5.43 24.12
- ----------------------------------------------------------------------------
</TABLE>
(a) Includes the balancing effect of calculating per share amounts.
(b) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all distributions, a complete redemption of the investment
at the net asset value at the end of period and no sales charge. Total
return would be reduced if a sales charge for Class A shares were taken
into account.
(c) Annualized.
(d) Not annualized.
(e) Includes the effect of mortgage dollar roll transactions.
(f) Calculated based on the average shares outstanding methodology.
(g) Administration Shares were liquidated on July 20, 1999. Ending net asset
value shown as of July 20, 1999.
104
<PAGE>
[This page intentionally left blank]
105
<PAGE>
SHORT DURATION GOVERNMENT FUND
<TABLE>
<CAPTION>
Income (loss) from
investment operationsa
-------------------------
Net asset
value, Net Net realized
beginning investment and unrealized
of period income gain (loss)
- --------------------------------------------------------------------
<S> <C> <C> <C>
For the Years Ended October 31,
1999 - Class A Shares $9.91 $0.55 $(0.36)
1999 - Class B Shares 9.88 0.48 (0.33)
1999 - Class C Shares 9.88 0.47 (0.36)
1999 - Institutional Shares 9.90 0.59 (0.35)
1999 - Administration Sharesh 9.91 0.40f (0.25)f
1999 - Service Shares 9.89 0.54 (0.35)
- --------------------------------------------------------------------
1998 - Class A Shares 9.88 0.57 0.04
1998 - Class B Shares 9.86 0.51 0.03
1998 - Class C Shares 9.86 0.49 0.03
1998 - Institutional Shares 9.86 0.58 0.06
1998 - Administration Shares 9.89 0.55 0.05
1998 - Service Shares 9.86 0.55 0.04
- --------------------------------------------------------------------
1997 - Class A Shares
(commenced May 1) 9.78 0.31f 0.09f
1997 - Class B Shares
(commenced May 1) 9.75 0.28f 0.10f
1997 - Class C Shares
(commenced August 15) 9.83 0.12f 0.02f
1997 - Institutional Shares 9.83 0.64f 0.03f
1997 - Administration Shares 9.85 0.62f 0.04f
1997 - Service Shares 9.82 0.59f 0.04f
- --------------------------------------------------------------------
1996 - Institutional Shares 9.82 0.63f 0.01f
1996 - Administration Sharesg 9.86 0.38f --f
1996 - Service Shares
(commenced April 10) 9.72 0.31f 0.10f
- --------------------------------------------------------------------
1995 - Institutional Shares 9.64 0.66f 0.17f
1995 - Administration Sharesg 9.64 0.24f (0.04)f
- --------------------------------------------------------------------
</TABLE>
(a) Includes the balancing effect of calculating per share amounts.
(b) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all distributions, a complete redemption of the investment
at the net asset value at the end of the period and no sales charge. Total
return would be reduced if a sales or redemption charge were taken into
account.
(c) Annualized.
(d) Not annualized.
(e) Includes the effect of mortgage dollar roll transactions.
(f) Calculated based on the average shares outstanding methodology.
(g) Short Duration Government Fund Administration Shares commenced activity on
April 15, 1993, were redeemed in full on February 23, 1995 and re-commenced
on February 28, 1996 at $9.86.
(h) Administration Shares were liquidated on July 20, 1999. Ending net asset
value shown as of July 20, 1999.
106
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Distributions
to
shareholders
-------------
Net
increase Net asset Net assets Ratio of net
From net (decrease) value, at end of expenses
investment in net end of Total period to average
income asset value period returnb (in 000s) net assets
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$(0.53) $(0.34) $9.57 1.97% $ 52,235 0.94%
(0.47) (0.32) 9.56 1.56 6,937 1.54
(0.45) (0.34) 9.54 1.21 7,029 1.69
(0.57) (0.33) 9.57 2.49 146,062 0.54
(0.39) (0.24) 9.67h 1.57d -- 0.79c
(0.52) (0.33) 9.56 1.97 6,605 1.04
- --------------------------------------------------------------------------------
(0.58) 0.03 9.91 6.36 56,725 0.81
(0.52) 0.02 9.88 5.62 5,025 1.41
(0.50) 0.02 9.88 5.46 4,527 1.56
(0.60) 0.04 9.90 6.75 145,514 0.53
(0.58) 0.02 9.91 6.27 7,357 0.78
(0.56) 0.03 9.89 6.12 6,232 1.03
- --------------------------------------------------------------------------------
(0.30) 0.10 9.88 4.14d 9,491 0.70c
(0.27) 0.11 9.86 3.94d 747 1.30c
(0.11) 0.03 9.86 1.44d 190 1.45c
(0.64) 0.03 9.86 7.07 103,729 0.45
(0.62) 0.04 9.89 6.91 1,060 0.70
(0.59) 0.04 9.86 6.63 3,337 0.95
- --------------------------------------------------------------------------------
(0.63) 0.01 9.83 6.75 99,944 0.45
(0.39) (0.01) 9.85 4.00d 252 0.70c
(0.31) 0.10 9.82 4.35d 1,822 0.95c
- --------------------------------------------------------------------------------
(0.65) 0.18 9.82 8.97 103,760 0.45
(0.21) (0.01) 9.63 2.10d -- 0.70c
- --------------------------------------------------------------------------------
</TABLE>
107
<PAGE>
SHORT DURATION GOVERNMENT FUND (continued)
<TABLE>
<CAPTION>
Ratios assuming no
voluntary waiver of
fees
or expense limitations
-----------------------
Ratio of net Ratio of net
investment Ratio of investment
income expenses income Portfolio
to average to average to average turnover
net assets net assets net assets ratee
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
For the Years Ended October 31,
1999 - Class A Shares 5.61% 1.07% 5.48% 172.61%
1999 - Class B Shares 5.04 1.82 4.76 172.61
1999 - Class C Shares 4.83 1.82 4.70 172.61
1999 - Institutional Shares 6.03 0.67 5.90 172.61
1999 - Administration Sharesh 5.76c 0.92c 5.63c 172.61
1999 - Service Shares 5.54 1.17 5.41 172.61
- -------------------------------------------------------------------------------
1998 - Class A Shares 5.68 1.32 5.17 119.89
1998 - Class B Shares 5.12 1.87 4.66 119.89
1998 - Class C Shares 4.64 1.87 4.33 119.89
1998 - Institutional Shares 6.06 0.84 5.75 119.89
1998 - Administration Shares 5.76 1.09 5.45 119.89
1998 - Service Shares 5.56 1.34 5.25 119.89
- -------------------------------------------------------------------------------
1997 - Class A Shares
(commenced May 1) 6.05c 1.32c 5.43c 102.58
1997 - Class B Shares
(commenced May 1) 5.52c 1.82c 5.00c 102.58
1997 - Class C Shares
(commenced August 15) 5.52c 1.82c 5.15c 102.58
1997 - Institutional Shares 6.43 0.82 6.06 102.58
1997 - Administration Shares 6.19 1.07 5.82 102.58
1997 - Service Shares 5.92 1.32 5.55 102.58
- -------------------------------------------------------------------------------
1996 - Institutional Shares 6.44 0.71 6.18 115.45
1996 - Administration Sharesg 5.97c 0.96c 5.71c 115.45
1996 - Service Shares
(commenced April 10) 6.05c 1.21c 5.79c 115.45
- -------------------------------------------------------------------------------
1995 - Institutional Shares 6.87 0.72 6.60 292.56
1995 - Administration Sharesg 7.91c 0.90c 7.71c 292.56
- -------------------------------------------------------------------------------
</TABLE>
(a) Includes the balancing effect of calculating per share amounts.
(b) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all distributions, a complete redemption of the investment
at the net asset value at the end of the period and no sales charge. Total
return would be reduced if a sales or redemption charge were taken into
account.
(c) Annualized.
(d) Not annualized.
(e) Includes the effect of mortgage dollar roll transactions.
(f) Calculated based on the average shares outstanding methodology.
(g) Short Duration Government Fund Administration Shares commenced activity on
April 15, 1993, were redeemed in full on February 23, 1995 and re-commenced
on February 28, 1996 at $9.86.
(h) Administration Shares were liquidated on July 20, 1999. Ending net asset
value shown as of July 20, 1999.
108
<PAGE>
[This page intentionally left blank]
109
<PAGE>
SHORT DURATION TAX-FREE FUND
<TABLE>
<CAPTION>
Income (loss) from
investment operationsa
-------------------------
Net realized
and unrealized
Net asset gain (loss)
value, Net on investment
beginning investment and futures
of period income transactions
- ---------------------------------------------------------------------
<S> <C> <C> <C>
For the Years Ended October 31,
1999 - Class A Shares $10.19 $0.34 $(0.24)
1999 - Class B Shares 10.18 0.28 (0.23)
1999 - Class C Shares 10.18 0.26 (0.22)
1999 - Institutional Shares 10.18 0.38 (0.23)
1999 - Administration Sharesf 10.18 0.26e (0.12)e
1999 - Service Shares 10.18 0.33e (0.24)e
- ---------------------------------------------------------------------
1998 - Class A Shares 10.08 0.36e 0.13 e
1998 - Class B Shares 10.08 0.30e 0.12 e
1998 - Class C Shares 10.07 0.28e 0.14 e
1998 - Institutional Shares 10.07 0.39e 0.13 e
1998 - Administration Shares 10.07 0.36e 0.13 e
1998 - Service Shares 10.07 0.34e 0.13 e
- ---------------------------------------------------------------------
1997 - Class A Shares (commenced
May 1) 9.94 0.20e 0.14 e
1997 - Class B Shares (commenced
May 1) 9.94 0.16e 0.14 e
1997 - Class C Shares (commenced
August 15) 10.04 0.07e 0.03 e
1997 - Institutional Shares 9.96 0.42e 0.11 e
1997 - Administration Shares 9.96 0.39e 0.11 e
1997 - Service Shares 9.97 0.37e 0.10 e
- ---------------------------------------------------------------------
1996 - Institutional Shares 9.94 0.42e 0.02 e
1996 - Administration Shares 9.94 0.39e 0.02 e
1996 - Service Shares 9.95 0.37e 0.02 e
- ---------------------------------------------------------------------
1995 - Institutional Shares 9.79 0.42e 0.15 e
1995 - Administration Shares 9.79 0.40e 0.15 e
1995 - Service Shares 9.79 0.37e 0.16 e
- ---------------------------------------------------------------------
</TABLE>
(a) Includes the balancing effect of calculating per share amounts.
(b) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all distributions, a complete redemption of the investment
at the net asset value at the end of period and no sales charge. Total
return would be reduced if a sales or redemption charge were taken into
account.
(c) Annualized.
(d) Not annualized.
(e) Calculated based on the average shares outstanding methodology.
(f) Administration Shares were liquidated on July 20, 1999. Ending net asset
value shown as of July 20, 1999.
110
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Distributions to shareholders
------------------------------------
Net Net Ratio of
In excess increase assets net
From net of net (decrease) Net asset at end of expenses
investment investment in net value, Total period to average
income income asset value end of period returnb (in 000s) net assets
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$(0.34) $(0.02) $(0.26) $ 9.93 1.00% $22,903 0.79%
(0.28) (0.02) (0.25) 9.93 0.49 2,000 1.39
(0.26) (0.03) (0.25) 9.93 0.34 2,070 1.54
(0.39) (0.01) (0.25) 9.93 1.50 77,522 0.39
(0.27) -- (0.13) 10.05f 1.37d -- 0.64c
(0.33) (0.02) (0.26) 9.92 0.89 173 0.89
- ------------------------------------------------------------------------------------------------
(0.38) -- 0.11 10.19 4.97 19,881 0.71
(0.32) -- 0.10 10.18 4.25 974 1.31
(0.31) -- 0.11 10.18 4.19 2,256 1.46
(0.41) -- 0.11 10.18 5.25 57,647 0.45
(0.38) -- 0.11 10.18 4.99 525 0.70
(0.36) -- 0.11 10.18 4.73 2,560 0.95
- ------------------------------------------------------------------------------------------------
(0.20) -- 0.14 10.08 3.39d 4,023 0.70c
(0.16) -- 0.14 10.08 3.07d 106 1.30c
(0.07) -- 0.03 10.07 0.97d 2 1.45c
(0.42) -- 0.11 10.07 5.40 28,821 0.45
(0.39) -- 0.11 10.07 5.14 77 0.70
(0.37) -- 0.10 10.07 4.77 2,051 0.95
- ------------------------------------------------------------------------------------------------
(0.42) -- 0.02 9.96 4.50 34,814 0.45
(0.39) -- 0.02 9.96 4.24 48 0.70
(0.37) -- 0.02 9.97 3.98 695 0.95
- ------------------------------------------------------------------------------------------------
(0.42) -- 0.15 9.94 5.98 58,389 0.45
(0.40) -- 0.15 9.94 5.76 46 0.70
(0.37) -- 0.16 9.95 5.59 454 0.95
- ------------------------------------------------------------------------------------------------
</TABLE>
111
<PAGE>
SHORT DURATION TAX-FREE FUND (continued)
<TABLE>
<CAPTION>
Ratios assuming
no voluntary waiver
of fees or
expense limitations
---------------------
Ratio of Ratio of
net net
investment Ratio of investment
income expenses income Portfolio
to average to average to average turnover
net assets net assets net assets rate
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
For the Years Ended October 31,
1999 - Class A Shares 3.37% 1.06% 3.10% 147.20%
1999 - Class B Shares 2.80 1.81 2.38 147.20
1999 - Class C Shares 2.62 1.81 2.35 147.20
1999 - Institutional Shares 3.79 0.66 3.52 147.20
1999 - Administration Sharesf 3.56c 0.91c 3.29c 147.20
1999 - Service Shares 3.23 1.16 2.96 147.20
- ----------------------------------------------------------------------------
1998 - Class A Shares 3.54 1.74 2.51 140.72
1998 - Class B Shares 3.06 2.27 2.10 140.72
1998 - Class C Shares 2.82 2.27 2.01 140.72
1998 - Institutional Shares 3.92 1.26 3.11 140.72
1998 - Administration Shares 3.58 1.51 2.77 140.72
1998 - Service Shares 3.44 1.76 2.63 140.72
- ----------------------------------------------------------------------------
1997 - Class A Shares (commenced
May 1) 3.81c 1.73c 2.78c 194.75
1997 - Class B Shares (commenced
May 1) 3.31c 2.23c 2.38c 194.75
1997 - Class C Shares (commenced
August 15) 2.60c 2.23c 1.82c 194.75
1997 - Institutional Shares 4.18 1.23 3.40 194.75
1997 - Administration Shares 3.91 1.48 3.13 194.75
1997 - Service Shares 3.66 1.73 2.88 194.75
- ----------------------------------------------------------------------------
1996 - Institutional Shares 4.21 1.01 3.65 231.65
1996 - Administration Shares 3.96 1.26 3.40 231.65
1996 - Service Shares 3.74 1.51 3.18 231.65
- ----------------------------------------------------------------------------
1995 - Institutional Shares 4.31 0.77 3.99 259.52
1995 - Administration Shares 4.14 1.02 3.82 259.52
1995 - Service Shares 3.87 1.27 3.55 259.52
- ----------------------------------------------------------------------------
</TABLE>
(a) Includes the balancing effect of calculating per share amounts.
(b) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all distributions, a complete redemption of the investment
at the net asset value at the end of period and no sales charge. Total
return would be reduced if a sales or redemption charge were taken into
account.
(c) Annualized.
(d) Not annualized.
(e) Calculated based on the average shares outstanding methodology.
(f) Administration Shares were liquidated on July 20, 1999. Ending net asset
value shown as of July 20, 1999.
112
<PAGE>
[This page intentionally left blank]
113
<PAGE>
GOVERNMENT INCOME FUND
<TABLE>
<CAPTION>
Income (loss) from
investment operationsa
-------------------------
Net asset
value, Net Net realized
beginning investment and unrealized
of period income gain (loss)
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
For the Years Ended October 31,
1999 - Class A Shares $14.91 $0.80 $(0.89)
1999 - Class B Shares 14.92 0.69 (0.87)
1999 - Class C Shares 14.91 0.69 (0.88)
1999 - Institutional Shares 14.90 0.85 (0.88)
1999 - Service Shares 14.88 0.77 (0.92)
- ----------------------------------------------------------------------------
1998 - Class A Shares 14.59 0.81 0.45
1998 - Class B Shares 14.61 0.72 0.42
1998 - Class C Shares 14.60 0.74 0.40
1998 - Institutional Shares 14.59 0.87 0.42
1998 - Service Shares 14.59 0.80 0.40
- ----------------------------------------------------------------------------
1997 - Class A Shares 14.36 0.91 0.29
1997 - Class B Shares 14.37 0.80 0.30
1997 - Class C Shares
(commenced August 15) 14.38 0.17 0.22
1997 - Institutional Shares
(commenced August 15) 14.37 0.20 0.22
1997 - Service Shares
(commenced August 15) 14.37 0.20 0.21
- ----------------------------------------------------------------------------
1996 - Class A Shares 14.47 0.92 (0.11)
1996 - Class B Shares (commenced May 1) 14.11 0.41 0.26
- ----------------------------------------------------------------------------
1995 - Class A Shares 13.47 0.94 1.00
- ----------------------------------------------------------------------------
</TABLE>
(a) Includes the balancing effect of calculating per share amounts.
(b) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all distributions, a complete redemption of the investment
at the net asset value at the end of the period and no sales charge. Total
return would be reduced if a sales or redemption charge were taken into
account.
(c) Annualized.
(d) Not annualized.
(e) Includes the effect of mortgage dollar roll transactions.
114
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Distributions to shareholders
---------------------------------------
Net
In excess increase Net asset Net assets
From net of net (decrease) value, at end of
investment investment From net in net end Total period
income income realized gains asset value of period returnb (in 000s)
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$(0.77) $ -- $(0.35) $(1.21) $13.70 (0.63)% $ 82,102
(0.67) -- (0.35) (1.20) 13.72 (1.29) 19,684
(0.66) -- (0.35) (1.20) 13.71 (1.29) 10,053
(0.83) -- (0.35) (1.21) 13.69 (0.23) 5,899
(0.75) -- (0.35) (1.25) 13.63 (1.01) 15
---------------------------------------------------------------------------------
(0.81) (0.07) (0.06) 0.32 14.91 8.98 101,015
(0.72) (0.05) (0.06) 0.31 14.92 8.09 16,125
(0.74) (0.03) (0.06) 0.31 14.91 8.09 9,639
(0.87) (0.05) (0.06) 0.31 14.90 9.19 2,642
(0.80) (0.05) (0.06) 0.29 14.88 8.53 2
---------------------------------------------------------------------------------
(0.90) -- (0.07) 0.23 14.59 8.72 68,859
(0.79) -- (0.07) 0.24 14.61 7.96 8,041
(0.17) -- -- 0.22 14.60 2.72d 1,196
(0.20) -- -- 0.22 14.59 2.94d 1,894
(0.19) -- -- 0.22 14.59 2.85d 2
---------------------------------------------------------------------------------
(0.92) -- -- (0.11) 14.36 5.80 30,603
(0.41) -- -- 0.26 14.37 4.85d 234
---------------------------------------------------------------------------------
(0.94) -- -- 1.00 14.47 14.90 29,503
---------------------------------------------------------------------------------
</TABLE>
115
<PAGE>
GOVERNMENT INCOME FUND (continued)
<TABLE>
<CAPTION>
Ratios assuming no
voluntary waiver of fees
or expense limitations
-----------------------------
Ratio of
net Ratio of net
Ratio of investment Ratio of investment
net expenses income expenses income Portfolio
to average to average to average to average turnover
net assets net assets net assets net assets rate e
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
For the Years Ended October 31,
1999 - Class A Shares 0.98% 5.63% 1.33% 5.28% 277.64%
1999 - Class B Shares 1.73 4.88 2.08 4.53 277.64
1999 - Class C Shares 1.73 4.89 2.08 4.54 277.64
1999 - Institutional Shares 0.58 6.07 0.93 5.72 277.64
1999 - Service Shares 1.08 5.56 1.43 5.21 277.64
- ----------------------------------------------------------------------------------------------------
1998 - Class A Shares 0.76 5.53 1.53 4.76 315.43
1998 - Class B Shares 1.51 4.76 2.05 4.22 315.43
1998 - Class C Shares 1.51 4.59 2.05 4.05 315.43
1998 - Institutional Shares 0.51 5.82 1.05 5.28 315.43
1998 - Service Shares 1.01 5.48 1.55 4.94 315.43
- ----------------------------------------------------------------------------------------------------
1997 - Class A Shares 0.50 6.38 1.82 5.06 395.75
1997 - Class B Shares 1.25 5.59 2.32 4.52 395.75
1997 - Class C Shares
(commenced August 15) 1.25c 5.45c 2.32c 4.38c 395.75
1997 - Institutional Shares
(commenced August 15) 0.25c 7.03c 1.32c 5.96c 395.75
1997 - Service Shares
(commenced August 15) 0.75c 6.49c 1.82c 5.42c 395.75
- ----------------------------------------------------------------------------------------------------
1996 - Class A Shares 0.50 6.42 1.89 5.03 485.09
1996 - Class B Shares
(commenced May 1) 1.25c 5.65c 2.39c 4.51c 485.09
- ----------------------------------------------------------------------------------------------------
1995 - Class A Shares 0.47 6.67 2.34 4.80 449.53
- ----------------------------------------------------------------------------------------------------
</TABLE>
(a) Includes the balancing effect of calculating per share amounts.
(b) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all distributions, a complete redemption of the investment
at the net asset value at the end of the period and no sales charge. Total
return would be reduced if a sales or redemption charge were taken into
account.
(c) Annualized.
(d) Not annualized.
(e) Includes the effect of mortgage dollar roll transactions.
116
<PAGE>
[This page intentionally left blank]
117
<PAGE>
MUNICIPAL INCOME FUND
<TABLE>
<CAPTION>
Income (loss) from
investment operationsa
-------------------------
Net realized
and unrealized
Net asset gain (loss) on
value, Net investment
beginning investment and futures
of period income transactions
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
For the Years Ended October 31,
1999 - Class A Shares $15.47 $0.63 $(1.29)
1999 - Class B Shares 15.47 0.51 (1.28)
1999 - Class C Shares 15.47 0.51 (1.28)
1999 - Institutional Shares 15.47 0.70 (1.30)
1999 - Service Shares 15.48 0.65 (1.32)
- ----------------------------------------------------------------------------
1998 - Class A Shares 14.99 0.65 0.50
1998 - Class B Shares 15.00 0.53 0.49
1998 - Class C Shares 14.99 0.53 0.50
1998 - Institutional Shares 15.00 0.68 0.50
1998 - Service Shares 14.99 0.64 0.49
- ----------------------------------------------------------------------------
1997 - Class A Shares 14.37 0.67 0.62
1997 - Class B Shares 14.37 0.56 0.63
1997 - Class C Shares
(commenced August 15) 14.85 0.12 0.14
1997 - Institutional Shares
(commenced August 15) 14.84 0.15 0.16
1997 - Service Shares
(commenced August 15) 14.84 0.14 0.15
- ----------------------------------------------------------------------------
1996 - Class A Shares 14.17 0.65 0.20
1997 - Class B Shares (commenced May 1) 14.03 0.27 0.34
- ----------------------------------------------------------------------------
1995 - Class A Shares 13.08 0.67 1.09
- ----------------------------------------------------------------------------
</TABLE>
(a) Includes the balancing effect of calculating per share amounts.
(b) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all distributions, a complete redemption of the investment
at the net asset value at the end of the period and no sales charge. Total
return would be reduced if a sales or redemption charge were taken into
account.
(c) Annualized.
(d) Not annualized.
118
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Distributions to shareholders
-------------------------------------
From
net realized Net
From In excess gain on increase Net assets Ratio of
net of net investment (decrease) Net asset at end of net expenses
investment investment and futures in net value, Total period to average
income income transactions asset value end of period returnb (in 000s) net assets
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$(0.65) $ -- $(0.09) $(1.40) $14.07 (4.46)% $90,443 0.94%
(0.52) (0.01) (0.09) (1.39) 14.08 (5.10) 9,334 1.69
(0.51) (0.02) (0.09) (1.39) 14.08 (5.10) 4,379 1.69
(0.70) (0.01) (0.09) (1.40) 14.07 (4.07) 16,197 0.54
(0.63) -- (0.09) (1.39) 14.09 (4.49) 2 1.04
- -------------------------------------------------------------------------------------------------
(0.64) -- (0.03) 0.48 15.47 7.79 91,158 0.87
(0.52) -- (0.03) 0.47 15.47 6.91 6,722 1.62
(0.52) -- (0.03) 0.48 15.47 6.98 2,862 1.62
(0.68) -- (0.03) 0.47 15.47 8.00 6,154 0.58
(0.61) -- (0.03) 0.49 15.48 7.68 2 1.08
- -------------------------------------------------------------------------------------------------
(0.67) -- -- 0.62 14.99 9.23 64,553 0.85
(0.56) -- -- 0.63 15.00 8.48 1,750 1.60
(0.12) -- -- 0.14 14.99 1.75d 130 1.60c
(0.15) -- -- 0.16 15.00 2.10d 351 0.60c
(0.14) -- -- 0.15 14.99 1.93d 2 1.10c
- -------------------------------------------------------------------------------------------------
(0.65) -- -- 0.20 14.37 6.13 52,267 0.85
(0.27) -- -- 0.34 14.37 4.40d 255 1.60c
- -------------------------------------------------------------------------------------------------
(0.67) -- -- 1.09 14.17 13.79 53,797 0.76
- -------------------------------------------------------------------------------------------------
</TABLE>
119
<PAGE>
MUNICIPAL INCOME FUND (continued)
<TABLE>
<CAPTION>
Ratios assuming no
voluntary waiver of fees
or expense limitations
------------------------------
Ratio of net Ratio of net
investment Ratio of investment
income expenses income Portfolio
to average to average to average turnover
net assets net assets net assets rate
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
For the Years Ended October 31,
1999 - Class A Shares 4.15% 1.14% 3.95% 70.31%
1999 - Class B Shares 3.40 1.89 3.20 70.31
1999 - Class C Shares 3.40 1.89 3.20 70.31
1999 - Institutional Shares 4.58 0.74 4.38 70.31
1999 - Service Shares 4.35 1.24 4.15 70.31
- ------------------------------------------------------------------------------------------
1998 - Class A Shares 4.25 1.64 3.48 56.51
1998 - Class B Shares 3.44 2.16 2.90 56.51
1998 - Class C Shares 3.38 2.16 2.84 56.51
1998 - Institutional Shares 4.41 1.12 3.87 56.51
1998 - Service Shares 4.21 1.62 3.67 56.51
- ------------------------------------------------------------------------------------------
1997 - Class A Shares 4.60 1.62 3.83 153.12
1997 - Class B Shares 3.74 2.12 3.22 153.12
1997 - Class C Shares
(commenced August 15) 3.24c 2.12c 2.72c 153.12
1997 - Institutional Shares
(commenced August 15) 4.41c 1.12c 3.89c 153.12
1997 - Service Shares
(commenced August 15) 4.24c 1.62c 3.72c 153.12
- ------------------------------------------------------------------------------------------
1996 - Class A Shares 4.58 1.55 3.88 344.13
1996 - Class B Shares
(commenced May 1) 3.55c 2.05c 3.10c 344.13
- ------------------------------------------------------------------------------------------
1995 - Class A Shares 4.93 1.49 4.20 335.55
- ------------------------------------------------------------------------------------------
</TABLE>
(a) Includes the balancing effect of calculating per share amounts.
(b) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all distributions, a complete redemption of the investment
at the net asset value at the end of the period and no sales charge. Total
return would be reduced if a sales or redemption charge were taken into
account.
(c) Annualized.
(d) Not annualized.
120
<PAGE>
[This page intentionally left blank]
121
<PAGE>
CORE FIXED INCOME FUND
<TABLE>
<CAPTION>
Income (loss) from
investment operationsa
-------------------------
Net asset
value, Net Net realized
beginning investment and unrealized
of period income gains (loss)
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
For the Years Ended October 31,
1999-Class A Shares $10.25 $0.54 $(0.61)
1999-Class B Shares 10.28 0.48 (0.62)
1999-Class C Shares 10.28 0.47 (0.62)
1999-Institutional Shares 10.28 0.58 (0.62)
1999-Administration Sharesg 10.27 0.40f (0.41)f
1999-Service Shares 10.28 0.54 (0.62)
- ------------------------------------------------------------------------------
1998-Class A Shares 10.06 0.59 0.27
1998-Class B Shares 10.09 0.52 0.27
1998-Class C Shares 10.09 0.52 0.27
1998-Institutional Shares 10.08 0.61 0.29
1998-Administration Shares 10.07 0.57 0.29
1998-Service Shares 10.09 0.56 0.27
- ------------------------------------------------------------------------------
1997-Class A Shares (commenced May 1) 9.70 0.30 0.36
1997-Class B Shares (commenced May 1) 9.72 0.27 0.37
1997-Class C Shares (commenced August 15) 9.93 0.11 0.16
1997-Institutional Shares 9.85 0.64 0.23
1997-Administration Shares 9.84 0.62 0.23
1997-Service Shares 9.86 0.59 0.23
- ------------------------------------------------------------------------------
1996-Institutional Shares 10.00 0.64 (0.07)
1996-Administrative Shares
(commenced February 28) 9.91 0.41 (0.07)
1996-Service Shares (commenced March 13) 9.77 0.38 0.09
- ------------------------------------------------------------------------------
1995-Institutional Shares 9.24 0.64 0.76
- ------------------------------------------------------------------------------
</TABLE>
(a) Includes the balancing effect of calculating per share amounts.
(b) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all distributions, a complete redemption of the investment
at the net asset value at the end of period and no sales charge. Total
return would be reduced if a sales or redemption charge were taken into
account.
(c) Annualized.
(d) Not annualized.
(e) Includes the effect of mortgage dollar roll transactions.
(f) Calculated based on average shares outstanding methodology.
(g) Administration Shares were liquidated on July 20, 1999. Ending net asset
value shown as of July 20, 1999.
122
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Distributions to shareholders
---------------------------------
Net
increase Net Net assets Ratio of
In excess (decrease) asset at end net
From net of net From net in net value, of expenses
investment investment realized asset end of Total period to average
income income gains value period returnb (in 000s) net assets
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$(0.53) $ -- $(0.15) $(0.75) $ 9.50 (0.68)% $ 65,368 0.94%
(0.47) -- (0.15) (0.76) 9.52 (1.47) 14,654 1.69
(0.46) -- (0.15) (0.76) 9.52 (1.51) 7,443 1.69
(0.57) -- (0.15) (0.76) 9.52 (0.37) 216,973 0.54
(0.40) -- (0.15) (0.56) 9.71g (0.13)d -- 0.79c
(0.53) -- (0.15) (0.76) 9.52 (0.87) 8,172 1.04
- ------------------------------------------------------------------------------------
(0.59) (0.02) (0.06) 0.19 10.25 8.76 56,267 0.74
(0.52) (0.02) (0.06) 0.19 10.28 7.94 7,209 1.49
(0.52) (0.02) (0.06) 0.19 10.28 7.94 5,587 1.49
(0.61) (0.03) (0.06) 0.20 10.28 9.15 195,730 0.46
(0.57) (0.03) (0.06) 0.20 10.27 8.88 12,743 0.71
(0.56) (0.02) (0.06) 0.19 10.28 8.50 5,263 0.96
- ------------------------------------------------------------------------------------
(0.30) -- -- 0.36 10.06 6.94d 9,336 0.70c
(0.27) -- -- 0.37 10.09 6.63d 621 1.45c
(0.11) -- -- 0.16 10.09 2.74d 272 1.45c
(0.64) -- -- 0.23 10.08 9.19 79,230 0.45
(0.62) -- -- 0.23 10.07 8.92 6,176 0.70
(0.59) -- -- 0.23 10.09 8.65 1,868 0.95
- ------------------------------------------------------------------------------------
(0.64) -- (0.08) (0.15) 9.85 5.98 72,061 0.45
(0.41) -- -- (0.07) 9.84 3.56d 702 0.70c
(0.38) -- -- 0.09 9.86 4.90d 381 0.95c
- ------------------------------------------------------------------------------------
(0.64) -- -- 0.76 10.00 15.72 55,502 0.45
- ------------------------------------------------------------------------------------
</TABLE>
123
<PAGE>
CORE FIXED INCOME FUND (continued)
<TABLE>
<CAPTION>
Ratios assuming no
voluntary waiver of
fees
or expense
limitations
---------------------
Ratio of Ratio of
net net
investment Ratio of investment
income expenses income Portfolio
to average to average to average turnover
net assets net assets net assets ratee
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
For the Years Ended October 31,
1999-Class A Shares 5.57% 0.98% 5.53% 279.67%
1999-Class B Shares 4.83 1.73 4.79 279.67
1999-Class C Shares 4.82 1.73 4.78 279.67
1999-Institutional Shares 5.97 0.58 5.93 279.67
1999-Administration Sharesg 5.63c 0.83c 5.59c 279.67
1999-Service Shares 5.50 1.08 5.46 279.67
- ---------------------------------------------------------------------------
1998-Class A Shares 5.58 1.21 5.11 271.50
1998-Class B Shares 4.82 1.75 4.56 271.50
1998-Class C Shares 4.81 1.75 4.55 271.50
1998-Institutional Shares 5.95 0.72 5.69 271.50
1998-Administration Shares 5.70 0.97 5.44 271.50
1998-Service Shares 5.44 1.22 5.18 271.50
- ---------------------------------------------------------------------------
1997-Class A Shares
(commenced May 1) 6.13c 1.33c 5.50c 361.27
1997-Class B Shares
(commenced May 1) 5.28c 1.83c 4.90c 361.27
1997-Class C Shares
(commenced August 15) 4.84c 1.83c 4.46c 361.27
1997-Institutional Shares 6.53 0.83 6.15 361.27
1997-Administration Shares 6.27 1.08 5.89 361.27
1997-Service Shares 6.00 1.33 5.62 361.27
- ---------------------------------------------------------------------------
1996-Institutional Shares 6.51 0.83 6.13 414.20
1996-Administrative Shares
(commenced February 28) 6.41c 1.08c 6.03c 414.20
1996-Service Shares
(commenced March 13) 6.37c 1.33c 5.99c 414.20
- ---------------------------------------------------------------------------
1995-Institutional Shares 6.56 0.96 6.05 382.26
</TABLE>
- --------------------------------------------------------------------------------
(a) Includes the balancing effect of calculating per share amounts.
(b) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all distributions, a complete redemption of the investment
at the net asset value at the end of period and no sales charge. Total
return would be reduced if a sales or redemption charge were taken into
account.
(c) Annualized.
(d) Not annualized.
(e) Includes the effect of mortgage dollar roll transactions.
(f) Calculated based on average shares outstanding methodology.
(g) Administration Shares were liquidated on July 20, 1999. Ending net asset
value shown as of July 20, 1999.
124
<PAGE>
[This page intentionally left blank]
125
<PAGE>
GLOBAL INCOME FUND
<TABLE>
<CAPTION>
Income (loss) from
investment operationsa
-------------------------
Net asset
value, Net Net realized
beginning investment and unrealized
of period income gain (loss)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
For the Years Ended October 31,
1999 - Class A Shares $15.65 $0.62e $(0.78)e
1999 - Class B Shares 15.63 0.53 (0.78)
1999 - Class C Shares 15.60 0.53 (0.77)
1999 - Institutional Shares 15.64 0.71 (0.77)
1999 - Service Shares 15.64 0.64 (0.79)
- --------------------------------------------------------------------------------
1998 - Class A Shares 15.10 0.72e 0.90e
1998 - Class B Shares 15.08 0.63e 0.92e
1998 - Class C Shares 15.06 0.63e 0.91e
1998 - Institutional Shares 15.09 0.82e 0.90e
1998 - Service Shares 15.09 0.74e 0.91e
- --------------------------------------------------------------------------------
1997 - Class A Shares 14.53 0.59 0.77
1997 - Class B Shares 14.53 0.72 0.56
1997 - Class C Shares (commenced August 15) 14.80 0.16 0.29
1997 - Institutional Shares 14.52 0.88 0.56
1997 - Service Shares (commenced March 12) 14.69 0.53 0.39
- --------------------------------------------------------------------------------
1996 - Class A Shares 14.45 0.71 0.80
1996 - Class B Shares (commenced May 1) 14.03 0.34 0.52
1996 - Institutional Shares 14.45 1.15 0.42
- --------------------------------------------------------------------------------
1995 - Class A Shares 13.43 0.89 1.07
1995 - Institutional Shares
(commenced August 1) 14.09 0.22 0.40
- --------------------------------------------------------------------------------
</TABLE>
(a) Includes the balancing effect of calculating per share amounts.
(b) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all distributions, a complete redemption of the investment
at the net asset value at the end of period and no sales charge. Total
return would be reduced if a sales or redemption charge were taken into
account.
(c) Annualized.
(d) Not annualized.
(e) Calculated based on the average shares outstanding methodology.
126
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Distributions to shareholders
- --------------------------------
Net
increase Net asset Net assets Ratio of
From net From (decrease) value, at end of net expenses
investment From net realized in net end of Total period to average
income capital gains asset value period returnb (in 000s) net assets
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$(0.61) $(0.03) $(0.36) $(1.16) $14.49 (1.14)% $271,832 1.34%
(0.55) (0.02) (0.36) (1.18) 14.45 (1.74) 16,724 1.84
(0.55) (0.02) (0.36) (1.17) 14.43 (1.68) 7,786 1.84
(0.71) (0.03) (0.36) (1.16) 14.48 (0.49) 279,621 0.69
(0.63) (0.03) (0.36) (1.17) 14.47 (1.06) 1,115 1.19
---------------------------------------------------------------------------------------
(1.01) -- (0.06) 0.55 15.65 11.21 217,362 1.31
(0.94) -- (0.06) 0.55 15.63 10.66 8,135 1.83
(0.94) -- (0.06) 0.54 15.60 10.65 4,090 1.83
(1.11) -- (0.06) 0.55 15.64 11.95 178,532 0.66
(1.04) -- (0.06) 0.55 15.64 11.43 1,058 1.16
---------------------------------------------------------------------------------------
(0.79) -- -- 0.57 15.10 9.66 167,096 1.17
(0.73) -- -- 0.55 15.08 9.04 3,465 1.71
(0.19) -- -- 0.26 15.06 3.03d 496 1.71c
(0.87) -- -- 0.57 15.09 10.26 60,929 0.65
(0.52) -- -- 0.40 15.09 6.42d 151 1.15c
---------------------------------------------------------------------------------------
(1.43) -- -- 0.08 14.53 11.05 198,665 1.16
(0.36) -- -- 0.50 14.53 6.24d 256 1.70c
(1.50) -- -- 0.07 14.52 11.55 54,254 0.65
---------------------------------------------------------------------------------------
(0.94) -- -- 1.02 14.45 15.08 245,835 1.29
(0.26) -- -- 0.36 14.45 4.42d 31,619 0.65c
---------------------------------------------------------------------------------------
</TABLE>
127
<PAGE>
GLOBAL INCOME FUND (continued)
<TABLE>
<CAPTION>
Ratios assuming no
voluntary waiver of fees
or expense limitations
------------------------------
Ratio of net Ratio of net
investment Ratio of investment
income expenses income Portfolio
to average to average to average turnover
net assets net assets net assets rate
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
For the Years Ended October 31,
1999 - Class A Shares 4.12% 1.72% 3.74% 158.27%
1999 - Class B Shares 3.60 2.22 3.22 158.27
1999 - Class C Shares 3.60 2.22 3.22 158.27
1999 - Institutional Shares 4.75 1.07 4.37 158.27
1999 - Service Shares 4.28 1.57 3.90 158.27
- ------------------------------------------------------------------------------------------
1998 - Class A Shares 4.71 1.75 4.27 229.91
1998 - Class B Shares 4.19 2.24 3.78 229.91
1998 - Class C Shares 4.20 2.24 3.79 229.91
1998 - Institutional Shares 5.40 1.07 4.99 229.91
1998 - Service Shares 4.92 1.57 4.51 229.91
- ------------------------------------------------------------------------------------------
1997 - Class A Shares 5.19 1.60 4.76 383.72
1997 - Class B Shares 4.76 2.10 4.37 383.72
1997 - Class C Shares
(commenced August 15) 4.98c 2.10c 4.59c 383.72
1997 - Institutional Shares 5.72 1.04 5.33 383.72
1997 - Service Shares
(commenced March 12) 5.33c 1.54c 4.94c 383.72
- ------------------------------------------------------------------------------------------
1996 - Class A Shares 5.81 1.64 5.33 232.15
1996 - Class B Shares
(commenced May 1) 5.16c 2.14c 4.72c 232.15
1996 - Institutional Shares 6.35 1.11 5.89 232.15
- ------------------------------------------------------------------------------------------
1995 - Class A Shares 6.23 1.58 5.94 265.86
1995 - Institutional Shares
(commenced August 1) 6.01c 1.08c 5.58c 265.86
- ------------------------------------------------------------------------------------------
</TABLE>
(a) Includes the balancing effect of calculating per share amounts.
(b) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all distributions, a complete redemption of the investment
at the net asset value at the end of period and no sales charge. Total
return would be reduced if a sales or redemption charge were taken into
account.
(c) Annualized.
(d) Not annualized.
(e) Calculated based on the average shares outstanding methodology.
128
<PAGE>
[This page intentionally left blank]
129
<PAGE>
HIGH YIELD FUND
<TABLE>
<CAPTION>
Income (loss) from investment
operationsa
-------------------------------
Net realized
and unrealized
Net asset gain (loss) on
value, Net investment and
beginning investment foreign currency
of period income related transactions
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
For the Years Ended October 31,
1999 - Class A Shares $ 9.16 $0.85 $(0.10)
1999 - Class B Shares 9.16 0.77 (0.09)
1999 - Class C Shares 9.16 0.78 (0.11)
1999 - Institutional Shares 9.17 0.90e (0.12)e
1999 - Service Shares 9.17 0.86e (0.12)e
- ---------------------------------------------------------------------------
1998 - Class A Shares 9.97 0.82 (0.85)
1998 - Class B Shares 9.97 0.75 (0.86)
1998 - Class C Shares 9.97 0.75 (0.86)
1998 - Institutional Shares 9.97 0.84 (0.83)
1998 - Service Shares 9.97 0.80 (0.84)
- ---------------------------------------------------------------------------
For the Period Ended October 31,
1997 - Class A Shares
(commenced August 1) 10.00 0.17 (0.02)
1997 - Class B Shares
(commenced August 1) 10.00 0.15 (0.02)
1997 - Class C Shares
(commenced August 15) 9.97 0.14 0.01
1997 - Institutional Shares
(commenced August 1) 10.00 0.18 (0.02)
1997 - Service Shares
(commenced August 1) 10.00 0.17 (0.02)
- ---------------------------------------------------------------------------
</TABLE>
(a) Includes the balancing effect of calculating per share amounts.
(b) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all distributions, a complete redemption of the investment
at the net asset value at the end of period and no sales charge. Total
return would be reduced if a sales or redemption charge was taken into
account.
(c) Annualized.
(d) Not annualized.
(e) Calculated based on the average shares outstanding methodology.
130
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Distributions to
shareholders
- ---------------------
From In excess Net assets Ratio of
net of net Net decrease Net asset at end of net expenses
investment investment in net value, end Total period to average
income income asset value of period returnb (in 000s) net assets
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$(0.84) $ -- $(0.09) $9.07 8.06% $524,674 1.16%
(0.76) -- (0.08) 9.08 7.38 39,907 1.91
(0.76) -- (0.09) 9.07 7.26 10,078 1.91
(0.87) -- (0.09) 9.08 8.49 257,498 0.76
(0.83) -- (0.09) 9.08 7.95 280 1.26
- ------------------------------------------------------------------------------
(0.78) -- (0.81) 9.16 (0.70) 401,626 1.09
(0.70) -- (0.81) 9.16 (1.43) 29,256 1.84
(0.70) -- (0.81) 9.16 (1.43) 8,532 1.84
(0.81) -- (0.80) 9.17 (0.32) 97,547 0.84
(0.76) -- (0.80) 9.17 (0.79) 447 1.34
- ------------------------------------------------------------------------------
(0.17) (0.01) (0.03) 9.97 1.50d 325,911 0.95c
(0.15) (0.01) (0.03) 9.97 1.31d 10,308 1.70c
(0.14) (0.01) -- 9.97 1.46d 1,791 1.70c
(0.18) (0.01) (0.03) 9.97 1.58d 2 0.70c
(0.17) (0.01) (0.03) 9.97 1.46d 2 1.20c
- ------------------------------------------------------------------------------
</TABLE>
131
<PAGE>
HIGH YIELD FUND (continued)
<TABLE>
<CAPTION>
Ratios assuming
no expense limitations
-------------------------
Ratio of Ratio of
net investment Ratio of net investment
income expenses income Portfolio
to average to average to average turnover
net assets net assets net assets rate
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
For the Years Ended October
31,
1999 - Class A Shares 9.06% 1.22% 9.00% 59.04%
1999 - Class B Shares 8.30 1.97 8.24 59.04
1999 - Class C Shares 8.26 1.97 8.20 59.04
1999 - Institutional Shares 9.50 0.82 9.44 59.04
1999 - Service Shares 8.92 1.32 8.86 59.04
- -------------------------------------------------------------------------------
1998 - Class A Shares 8.25 1.36 7.98 113.44
1998 - Class B Shares 7.61 1.88 7.57 113.44
1998 - Class C Shares 7.61 1.88 7.57 113.44
1998 - Institutional Shares 9.47 0.88 9.43 113.44
1998 - Service Shares 9.17 1.38 9.13 113.44
- -------------------------------------------------------------------------------
For the Period Ended
October 31,
1997 - Class A Shares
(commenced August 1) 7.06c 1.57c 6.44c 44.80d
1997 - Class B Shares
(commenced August 1) 6.28c 2.07c 5.91c 44.80d
1997 - Class C Shares
(commenced August 15) 6.17c 2.07c 5.80c 44.80d
1997 - Institutional Shares
(commenced August 1) 7.16c 1.07c 6.79c 44.80d
1997 - Service Shares
(commenced August 1) 6.69c 1.57c 6.32c 44.80d
- -------------------------------------------------------------------------------
</TABLE>
(a) Includes the balancing effect of calculating per share amounts.
(b) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all distributions, a complete redemption of the investment
at the net asset value at the end of period and no sales charge. Total
return would be reduced if a sales or redemption charge was taken into
account.
(c) Annualized.
(d) Not annualized.
(e) Calculated based on the average shares outstanding methodology.
132
<PAGE>
[This page intentionally left blank]
133
<PAGE>
Index
<TABLE>
<C> <C> <S>
1 General Investment
Management Approach
3 Fund Investment Objectives
and Strategies
3 Goldman Sachs Adjustable
Rate Government Fund
4 Goldman Sachs Short
Duration Government Fund
5 Goldman Sachs Short
Duration Tax-Free Fund
6 Goldman Sachs Government
Income Fund
7 Goldman Sachs Municipal
Income Fund
8 Goldman Sachs Core Fixed
Income Fund
9 Goldman Sachs Global
Income Fund
11 Goldman Sachs High Yield
Municipal Fund
13 Goldman Sachs High Yield
Fund
</TABLE>
<TABLE>
<C> <C> <S>
16 Other Investment
Practices and Securities
20 Principal Risks of the
Funds
25 Fund Performance
34 Fund Fees and Expenses
46 Service Providers
53 Dividends
55 Shareholder Guide
55 How to Buy Shares
66 How to Sell Shares
77 Taxation
80 Appendix A
Additional Information on
Portfolio Risks,
Securities and Techniques
102 Appendix B
Financial Highlights
</TABLE>
<PAGE>
Fixed Income Funds
Prospectus (Class A, B and C Shares)
FOR MORE INFORMATION
Annual/Semi-annual Report
Additional information about the Funds' investments is available in the
Funds' annual and semi-annual reports to shareholders. In the Funds' annual
reports, you will find a discussion of the market conditions and investment
strategies that significantly affected the Funds' performance during the
last fiscal year.
Statement of Additional Information
Additional information about the Funds and their policies is also available
in the Funds' Additional Statement. The Additional Statement is incorporated
by reference into this Prospectus (is legally considered part of this Pro-
spectus).
The Funds' annual and semi-annual reports, and the Additional Statement, are
available free upon request by calling Goldman Sachs at 1-800-526-7384.
To obtain other information and for shareholder inquiries:
By telephone - Call 1-800-526-7384
By mail - Goldman, Sachs & Co., 4900 Sears Tower, Chicago, Illinois
60606 - 6372
By e-mail - [email protected]
On the Internet - Text-only versions of the Funds' documents are located
online and may be downloaded from:
SEC EDGAR database - http://www.sec.gov
Goldman Sachs - http://www.gs.com (Prospectus Only)
You may review and obtain copies of Fund documents by visiting the SEC's
Public Reference Room in Washington, D.C. You may also obtain copies of Fund
documents, after paying a duplicating fee, by writing to the SEC's Public
Reference Section, Washington, D.C. 20549-0102 or by electronic request to:
[email protected]. Information on the operation of the public reference
room may be obtained by calling the SEC at (202) 942-8090.
[LOGO OF GOLDMAN SACHS]
The Funds' investment company registration number is 811-5349.
512717
FIPROABC
<PAGE>
GOLDMAN SACHS FIXED INCOME FUNDS
Prospectus
Institutional
Shares
March 1, 2000
..Goldman Sachs
Adjustable Rate
Government Fund
..Goldman Sachs Short
Duration Government Fund
..Goldman Sachs Short
Duration Tax-Free Fund
..Goldman Sachs
Government Income Fund
..Goldman Sachs
Municipal Income Fund
..Goldman Sachs Core
Fixed Income Fund
..Goldman Sachs
Global Income Fund
..Goldman Sachs
High Yield Municipal Fund
..Goldman Sachs
High Yield Fund
THE SECURITIES AND EXCHANGE COMMISSION
HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
AN INVESTMENT IN A FUND IS NOT A BANK
DEPOSIT AND IS NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR
ANY OTHER GOVERNMENT AGENCY. AN
INVESTMENT IN A FUND INVOLVES INVESTMENT
RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
[LOGO OF GOLDMAN SACHS]
<PAGE>
NOT FDIC-INSURED May Lose Value Bank Guarantee
<PAGE>
General Investment Management Approach
Goldman Sachs Asset Management, a unit of the Investment Management Division
of Goldman, Sachs & Co. ("Goldman Sachs"), serves as investment adviser to
the Short Duration Tax-Free, Government Income, Municipal Income, Core Fixed
Income, High Yield Municipal and High Yield Funds. Goldman Sachs Funds Man-
agement, L.P. serves as investment adviser to the Adjustable Rate Government
and Short Duration Government Funds. Goldman Sachs Asset Management Interna-
tional serves as investment adviser to the Global Income Fund. Goldman Sachs
Asset Management, Goldman Sachs Funds Management, L.P., and Goldman Sachs
Asset Management International are each referred to in this Prospectus as
the "Investment Adviser."
Goldman Sachs' Fixed Income Investing Philosophy:
Active Management Within a Risk-Managed Framework
The Investment Adviser employs a disciplined, multi-step process to evaluate
potential investments:
1. Sector Allocation--The Investment Adviser assesses the relative value of
different investment sectors (such as U.S. corporate, asset-backed and mort-
gage-backed securities) to create investment strategies that meet each
Fund's objectives.
2. Security Selection--In selecting securities for each Fund, the Investment
Adviser draws on the extensive resources of Goldman Sachs, including fixed-
income research professionals.
3. Yield Curve Strategies--The Investment Adviser adjusts the term structure
of the Funds based on its expectations of changes in the shape of the yield
curve while closely controlling the overall duration of the Fund.
The Investment Adviser de-emphasizes interest rate predictions as a means of
generating incremental return. Instead, the Investment Adviser seeks to add
value through the selection of particular securities and investment sector
allocation as described above.
With every fixed-income portfolio, the Investment Adviser applies a team
approach that emphasizes risk management and capitalizes on Goldman Sachs'
extensive research capabilities.
- --------------------------------------------------------------------------------
1
<PAGE>
Each of the Funds described in this Prospectus has a target duration. A
Fund's duration approximates its price sensitivity to changes in interest
rates. Maturity measures the time until final payment is due; it takes no
account of the pattern of a security's cash flows over time. In computing
portfolio duration, a Fund will estimate the duration of obligations that
are subject to prepayment or redemption by the issuer, taking into account
the influence of interest rates on prepayments and coupon flows. This method
of computing duration is known as "option-adjusted" duration. A Fund will
not be limited as to its maximum weighted average portfolio maturity or the
maximum stated maturity with respect to individual securities unless other-
wise noted.
Each Fund also has credit rating requirements for the securities it buys. A
Fund will deem a security to have met its minimum credit rating requirement
if the security has the required rating at the time of purchase from at
least one nationally recognized statistical rating organization ("NRSRO")
even though it has been rated below the minimum rating by one or more other
NRSROs. Unrated securities may be purchased by the Funds if they are deter-
mined by the Investment Adviser to be of comparable quality. If a security
satisfies a Fund's minimum rating requirement at the time of purchase and is
subsequently downgraded below such rating, the Fund will not be required to
dispose of such security. This is so even if the downgrade causes the aver-
age credit quality of the Fund to be lower than that stated in the Prospec-
tus. Furthermore, during this period, the Investment Adviser will only buy
securities at or above the Fund's average rating requirement. If a downgrade
occurs, the Investment Adviser will consider what action, including the sale
of such security, is in the best interests of a Fund and its shareholders.
2
<PAGE>
Fund Investment Objectives and Strategies
Goldman Sachs Adjustable Rate Government Fund
FUND FACTS
- --------------------------------------------------------------------------------
Duration (under Target = Six-Month to One-Year U.S. Treasury Security
normal interest Maximum = 2 years
rate conditions):
Expected Approxi- 9-month U.S. Treasury bill
mate Interest
Rate Sensitivity:
Credit Quality: U.S. Government Securities and repurchase agreements col-
lateralized by such securities
Benchmarks: Six-Month and One-Year U.S. Treasury Security
INVESTMENT OBJECTIVE
The Fund seeks to provide a high level of current income, consistent with
low volatility of principal.
PRINCIPAL INVESTMENT STRATEGIES
The Fund invests, under normal circumstances, at least 65% of its total
assets in securities issued or guaranteed by the U.S. government, its agen-
cies, instrumentalities or sponsored enterprises ("U.S. Government Securi-
ties") that are adjustable rate mortgage pass-through securities and other
mortgage securities with periodic interest rate resets. The remainder of the
Fund's assets (up to 35%) may be invested in other U.S. Government Securi-
ties, including:
..Fixed rate mortgage pass-through securities
..Other securities representing an interest in or collateralized by adjust-
able rate and fixed rate mortgage loans ("Mortgage-Backed Securities")
..Repurchase agreements collateralized by U.S. Government Securities
Substantially all of the Fund's assets will be invested in U.S. Government
Securities. 100% of the Fund's portfolio will be invested in U.S. dollar-
denominated securities.
3
<PAGE>
Goldman Sachs Short Duration Government Fund
FUND FACTS
- --------------------------------------------------------------------------------
Duration (under Target = Two-Year U.S. Treasury Security plus or minus
normal interest 0.5 years
rate conditions): Maximum = 3 years
Expected Approxi- 2-year U.S. Treasury note
mate Interest Rate
Sensitivity:
Credit Quality: U.S. Government Securities and repurchase agreements
collateralized by such securities
Benchmark: Two-Year U.S. Treasury Security
INVESTMENT OBJECTIVE
The Fund seeks a high level of current income and secondarily, in seeking
current income, may also consider the potential for capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES
The Fund invests, under normal market conditions, at least 65% of its total
assets in U.S. Government Securities and in repurchase agreements collater-
alized by such securities. Substantially all of the Fund's assets will be
invested in U.S. Government Securities. 100% of the Fund's portfolio will be
invested in U.S. dollar-denominated securities.
4
<PAGE>
FUND INVESTMENT OBJECTIVES AND STRATEGIES
Goldman Sachs Short Duration Tax-Free Fund
FUND FACTS
- --------------------------------------------------------------------------------
Duration (under Target = Lehman Brothers Three-Year Municipal Bond Index
normal interest plus or minus 0.5 years
rate conditions): Maximum = 4 years
Expected Approxi- 3-year municipal bond
mate Interest Rate
Sensitivity:
Credit Quality: Minimum = BBB or Baa by a NRSRO at the
time of purchase, or, if unrated, deter-
mined by the Investment Adviser to be of
comparable quality
Benchmark: Lehman Brothers Three-Year Municipal Bond Index
INVESTMENT OBJECTIVE
The Fund seeks a high level of current income, consistent with relatively
low volatility of principal, that is exempt from regular federal income tax.
PRINCIPAL INVESTMENT STRATEGIES
The Fund invests, under normal conditions, at least 80% of its net assets in
fixed-income securities issued by or on behalf of states, territories and
possessions of the United States (including the District of Columbia) and
the political subdivisions, agencies and instrumentalities thereof ("Munici-
pal Securities"), the interest on which is exempt from regular federal
income tax (i.e., excluded from gross income for federal income tax purpos-
es), and is not a tax preference item under the federal alternative minimum
tax. Under normal circumstances, the Fund's investments in private activity
bonds and taxable investments will not exceed, in the aggregate, 20% of the
Fund's net assets. The interest from private activity bonds (including the
Fund's distributions of such interest) may be a preference item for purposes
of the federal alternative minimum tax. 100% of the Fund's portfolio will be
invested in U.S. dollar-denominated securities.
5
<PAGE>
Goldman Sachs Government Income Fund
FUND FACTS
- --------------------------------------------------------------------------------
Duration (under Target = Lehman Brothers Mutual Fund Government/Mortgage
normal interest Index plus or minus 1 year
rate conditions): Maximum = 6 years
Expected Approxi- 5-year U.S. Treasury note
mate Interest Rate
Sensitivity:
Credit Quality: U.S. Government Securities; non-U.S. Government Securi-
ties rated AAA or Aaa by a NRSRO at the time of purchase
or, if unrated, determined by the Investment Adviser to
be of comparable quality
Benchmark: Lehman Brothers Mutual Fund Government/Mortgage Index
INVESTMENT OBJECTIVE
The Fund seeks a high level of current income, consistent with safety of
principal.
PRINCIPAL INVESTMENT STRATEGIES
The Fund invests, under normal circumstances, at least 65% of its total
assets in U.S. Government Securities and in repurchase agreements collater-
alized by such securities. The remainder of the Fund's assets may be
invested in non-government securities such as privately issued Mortgage-
Backed Securities, asset-backed securities and corporate securities. 100% of
the Fund's portfolio will be invested in U.S. dollar-denominated securities.
6
<PAGE>
FUND INVESTMENT OBJECTIVES AND STRATEGIES
Goldman Sachs Municipal Income Fund
FUND FACTS
- --------------------------------------------------------------------------------
Duration (under Target = Lehman Brothers 15-Year Municipal Bond Index
normal interest plus or minus one year
rate conditions): Maximum = 12 years
Expected Approxi- 15-year municipal bond
mate Interest Rate
Sensitivity:
Credit Quality:
Minimum = BBB/Baa at the time of purchase; Weighted
Average = AA or Aa
Securities will either be rated by a NRSRO or, if
unrated, determined by the Investment Adviser to be of
comparable quality
Benchmark: Lehman Brothers 15-Year Municipal Bond Index
INVESTMENT OBJECTIVE
The Fund seeks a high level of current income that is exempt from regular
federal income tax, consistent with preservation of capital.
PRINCIPAL INVESTMENT STRATEGIES
The Fund invests, under normal circumstances, at least 80% of its net assets
in Municipal Securities, the interest on which is exempt from regular fed-
eral income tax (i.e., excluded from gross income for federal income tax
purposes). The Fund may invest up to 100% of its net assets in private
activity bonds, the interest from which (including the Fund's distributions
of such interest) may be a preference item for purposes of the federal
alternative minimum tax. 100% of the Fund's portfolio will be invested in
U.S. dollar-denominated securities.
7
<PAGE>
Goldman Sachs Core Fixed Income Fund
FUND FACTS
- --------------------------------------------------------------------------------
Duration (under Target = Lehman Brothers Aggregate Bond Index plus or
normal interest minus one year
rate conditions): Maximum = 6 years
Expected Approxi- 5-year U.S. Treasury note
mate Interest Rate
Sensitivity:
Credit Quality: Minimum = BBB or Baa; Minimum for non-U.S. dollar denom-
inated securities = AA or Aa
Securities will either be rated by a NRSRO or, if
unrated, determined by the Investment Adviser to be of
comparable quality
Benchmark: Lehman Brothers Aggregate Bond Index
INVESTMENT OBJECTIVE
The Fund seeks a total return consisting of capital appreciation and income
that exceeds the total return of the Lehman Brothers Aggregate Bond Index
(the "Index").
PRINCIPAL INVESTMENT STRATEGIES
The Fund invests, under normal circumstances, at least 65% of its total
assets in fixed-income securities, including U.S. Government Securities,
corporate debt securities, Mortgage-Backed Securities and asset-backed secu-
rities. The Fund may also invest in custodial receipts, Municipal Securities
and convertible securities. The Fund's investments in non-U.S. dollar denom-
inated obligations will not exceed 25% of its total assets at the time of
investment, of which 10% may be invested in obligations of issuers in coun-
tries with emerging markets or economies ("emerging countries"). In pursuing
its investment objective, the Fund uses the Index as its performance bench-
mark, but the Fund will not attempt to replicate the Index. The Fund may,
therefore, invest in securities that are not included in the Index.
8
<PAGE>
FUND INVESTMENT OBJECTIVES AND STRATEGIES
Goldman Sachs Global
Income Fund
FUND FACTS
- --------------------------------------------------------------------------------
Duration (under Target = J.P. Morgan Global Government Bond Index
normal interest (hedged) plus or minus 2.5 years
rate conditions): Maximum = 7.5 years
Expected Approxi- 6-year government bond
mate Interest Rate
Sensitivity:
Credit Quality:
Minimum = BBB or Baa at time of purchase; at least 50%
of total assets = AAA or Aaa
Securities will either be rated by a NRSRO or, if
unrated, determined by the Investment Adviser to be of
comparable quality
Benchmark: J.P. Morgan Global Government Bond Index (hedged)
INVESTMENT OBJECTIVE
The Fund seeks a high total return, emphasizing current income, and, to a
lesser extent, providing opportunities for capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES
The Fund invests primarily in a portfolio of high quality fixed-income secu-
rities of U.S. and foreign issuers and enters into transactions in foreign
currencies. Under normal market conditions, the Fund will:
..Have at least 30% of its total assets, after considering the effect of cur-
rency positions, denominated in U.S. dollars
..Invest in securities of issuers in at least three countries
..Seek to meet its investment objective by pursuing investment opportunities
in foreign and domestic fixed-income securities markets and by engaging in
currency transactions to seek to enhance returns and to seek to hedge its
portfolio against currency exchange rate fluctuations
The Fund may invest more than 25% of its total assets in the securities of
corporate and governmental issuers located in each of Canada, Germany, Japan
and the United Kingdom as well as in the securities of U.S. issuers. Not
more than 25% of the Fund's total assets will be invested in securities of
issuers in any other
9
<PAGE>
Goldman Sachs Global Income Fund continued
single foreign country. The Fund may also invest up to 10% of its total
assets in issuers in emerging countries.
The fixed-income securities in which the Fund may invest include:
..U.S. Government Securities and custodial receipts therefor
..Securities issued or guaranteed by a foreign government or any of its
political subdivisions, authorities, agencies, instrumentalities or by
supranational entities
..Corporate debt securities
..Certificates of deposit and bankers' acceptances issued or guaranteed by,
or time deposits maintained at, U.S. or foreign banks (and their branches
wherever located) having total assets of more than $1 billion
..Commercial paper
..Mortgage-Backed Securities and asset-backed securities
The Global Income Fund is "non-diversified" under the Investment Company Act
of 1940 (the "Act"), and may invest more of its assets in fewer issuers than
"diversified" mutual funds. Therefore, the Global Income Fund may be more
susceptible to adverse developments affecting any single issuer held in its
portfolio, and may be more susceptible to greater losses because of these
developments.
10
<PAGE>
FUND INVESTMENT OBJECTIVES AND STRATEGIES
Goldman Sachs High Yield Municipal Fund
FUND FACTS
- --------------------------------------------------------------------------------
Duration (under Target = Lehman Brothers Municipal Bond Index plus or
normal interest minus 2 years
rate conditions): Maximum = 12 years
Expected Approxi- 15-20-year municipal bond
mate Interest Rate
Sensitivity:
Credit Quality:
At least 65% of total assets = BB or Ba or lower at the
time of investment or, if unrated, determined by the
Investment Adviser to be of comparable quality
Benchmarks: Lehman Brothers Municipal Bond Index and Lehman Brothers
High Yield Municipal Bond Index
INVESTMENT OBJECTIVE
The Fund seeks a high level of current income that is exempt from regular
federal income tax and may also consider the potential for capital apprecia-
tion.
PRINCIPAL INVESTMENT STRATEGIES
The Fund invests, under normal circumstances, at least 65% of its total
assets in high-yield Municipal Securities that, at the time of investment,
are non-investment grade securities. Non-investment grade securities are
securities rated BB, Ba or below by a NRSRO, or, if unrated, determined by
the Investment Adviser to be of comparable quality. Moreover, under normal
circumstances, the Fund may invest up to 35% of its total assets in invest-
ment grade fixed-income securities.
In pursuing its principal investment strategy, the Investment Adviser will
assess the relative value in the Municipal Securities market from both a
credit and yield curve perspective. Tax-exempt securities offering the high
current income sought by the Fund are ordinarily in the medium and lower
rating categories of NRSROs (BB/Ba or lower).
Under normal circumstances, the Fund invests at least 80% of its net assets
in Municipal Securities, the interest on which is exempt from regular fed-
eral income tax (i.e., excluded from gross income for federal income tax
purposes).
11
<PAGE>
Goldman Sachs High Yield Municipal Fund continued
The Fund may invest up to 100% of its net assets in private activity bonds,
the interest from which (including the Fund's distributions of such inter-
est) may be a preference item for purposes of the federal alternative mini-
mum tax. 100% of the Fund's portfolio will be invested in U.S. dollar-
denominated securities.
Recognizing that the high-yield municipal market may consist of a limited
number of attractive investment opportunities at any one time, the Invest-
ment Adviser may temporarily close the Fund to new investors in circum-
stances where it believes that a sufficient quantity of appropriate high-
yield Municipal Securities are not available in the market place. This
determination will not preclude existing shareholders from purchasing or
redeeming Fund shares.
The High Yield Municipal Fund is "non-diversified" under the Act, and may
invest more of its assets in fewer issuers than "diversified" mutual funds.
Therefore, the High Yield Municipal Fund may be more susceptible to adverse
developments affecting any single issuer held in its portfolio, and may be
more susceptible to greater losses because of these developments.
Non-investment grade fixed-income securities (commonly known as "junk
bonds") tend to offer higher yields than higher rated securities with simi-
lar maturities. Non-investment grade fixed-income securities are, however,
considered speculative and generally involve greater price volatility and
greater risk of loss of principal and interest than higher rated securities.
The Fund may purchase the securities of issuers that are in default.
12
<PAGE>
FUND INVESTMENT OBJECTIVES AND STRATEGIES
Goldman Sachs
High Yield Fund
FUND FACTS
- --------------------------------------------------------------------------------
Duration (under Target = Lehman Brothers High Yield Bond Index plus or
normal interest minus 2.5 years
rate conditions): Maximum = 7.5 years
Expected Approxi- 6-year U.S. Treasury note
mate Interest Rate
Sensitivity:
Credit Quality: At least 65% of total assets = BB or Ba or lower at the
time of investment or, if unrated, determined by the
Investment Adviser to be of comparable quality.
Benchmark: Lehman Brothers U.S. Corporate High Yield Bond Index
INVESTMENT OBJECTIVE
The Fund seeks a high level of current income and may also consider the
potential for capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES
The Fund invests, under normal circumstances, at least 65% of its total
assets in high yield, fixed-income securities that, at the time of invest-
ment, are non-investment grade securities. Non-investment grade securities
are securities rated BB, Ba or below by a NRSRO, or, if unrated, determined
by the Investment Adviser to be of comparable quality. The Fund may invest
in all types of fixed-income securities, including:
..Senior and subordinated corporate debt obligations (such as bonds, deben-
tures, notes and commercial paper)
..Convertible and non-convertible corporate debt obligations
..Loan participations
..Custodial receipts
..Municipal Securities
..Preferred stock
The Fund may invest up to 25% of its total assets in obligations of domestic
and foreign issuers which are denominated in currencies other than the U.S.
dollar and in securities of issuers located in emerging countries denomi-
nated in any currency.
13
<PAGE>
Goldman Sachs High Yield Fund continued
Under normal market conditions, the Fund may invest up to 35% of its total
assets in investment grade fixed-income securities, including U.S. Govern-
ment Securities. The Fund may also invest in common stocks, warrants, rights
and other equity securities, but will generally hold such equity investments
only when debt or preferred stock of the issuer of such equity securities is
held by the Fund.
Non-investment grade fixed-income securities (commonly known as "junk
bonds") tend to offer higher yields than higher rated securities with simi-
lar maturities. Non-investment grade fixed-income securities are, however,
considered speculative and generally involve greater price volatility and
greater risk of loss of principal and interest than higher rated securities.
The Fund may purchase the securities of issuers that are in default.
CREDIT QUALITY
For your information, set forth below is the distribution of ratings for the
portfolio securities (including commercial paper and non-convertible bonds)
held by the Fund on October 31, 1999, the last day of the Fund's fiscal
year.
<TABLE>
<CAPTION>
Percentage of
Fund's assets
---------------------------------------------
<S> <C>
AAA/Aaa 2.3%
AA/Aa 0.0%
A 0.0%
BBB/Baa 1.5%
BB/Ba 9.7%
B 79.3%
CCC/Caa 5.6%
Not rated
Comparable to A 0.0%
Comparable to BBB/Baa 0.0%
Comparable to BB/Ba or lower 0.0%
Comparable to CCC 1.6%
---------------------------------------------
100.0%
---------------------------------------------
</TABLE>
14
<PAGE>
[This page intentionally left blank]
15
<PAGE>
Other Investment Practices and Securities
The table below identifies some of the investment techniques that may (but are
not required to) be used by the Funds in seeking to achieve their investment
objectives. The table also highlights the differences among the Funds in their
use of these techniques and other investment practices and investment securi-
ties. Numbers in this table show allowable usage only; for actual usage, con-
sult the Funds' annual and semi-annual reports. For more information see Appen-
dix A.
10 Percent of total assets (italic type)
10 Percent of net assets (roman type)
.. No specific percentage limitation on usage; limited only by the objectives
and strategies of the Fund
<TABLE>
<CAPTION>
Adjustable Short Short
Rate Duration Duration Government
Government Government Tax-Free Income
Fund Fund Fund Fund
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Practices
Borrowings 33 1/3 33 1/3 33 1/3 33 1/3
Credit and Interest Rate Swaps* . . . .
Currency Options and Futures -- -- -- --
Cross Hedging of Currencies -- -- -- --
Currency Swaps* -- -- -- --
Financial Futures Contracts . . . .
Forward Foreign Currency Exchange
Contracts -- -- -- --
Interest Rate Floors, Caps and
Collars . . . .
Mortgage Dollar Rolls . . -- .
Mortgage Swaps* . . -- .
Options (including Options on
Futures) . . . .
Options on Foreign Currencies -- -- -- --
Repurchase Agreements . . . .
Securities Lending 33 1/3 33 1/3 33 1/3 33 1/3
Standby Commitments and Tender
Option Bonds -- -- . --
When-Issued Securities and Forward
Committments . . . .
- -----------------------------------------------------------------------------
</TABLE>
- --Not permitted
* Limited to 15% of net assets (together with other illiquid securities) for
all structured securities which are not deemed to be liquid and all swap
transactions.
** These Funds may enter into repurchase agreements collateralized by securi-
ties issued by foreign governments.
16
<PAGE>
OTHER INVESTMENT PRACTICES AND SECURITIES
<TABLE>
<CAPTION>
Municipal Core Fixed Global High Yield
Income Income Income Municipal High Yield
Fund Fund Fund Fund Fund
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
33 1/3 33 1/3 33 1/3 33 1/3 33 1/3
. . . . .
-- . . -- .
-- . . -- .
-- . . -- .
. . . . .
-- . . -- .
. . . . .
-- . . -- --
-- . . -- .
. . . . .
-- . . -- .
. .** .** . .**
33 1/3 33 1/3 33 1/3 33 1/3 33 1/3
. -- -- . --
. . . . .
- ---------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE>
10 Percent of total assets (italic type)
10 Percent of net assets (roman type)
.. No specific percentage limitation on usage; limited only by the objectives
and strategies of the Fund
- -- Not permitted
<TABLE>
<CAPTION>
Adjustable Short Short
Rate Duration Duration Government
Government Government Tax-Free Income
Fund Fund Fund Fund
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Securities
Asset-Backed Securities ./1/ ./1/ . .
Bank Obligations -- -- -- .
Convertible Securities -- -- . --
Corporate Debt Obligations and Trust
Preferred Securities -- -- . .
Emerging Country Securities -- -- -- --
Foreign Securities/2/ -- -- -- --
Loan Participations -- -- -- --
Mortgage-Backed Securities
Adjustable Rate Mortgage Loans . . -- .
Collateralized Mortgage Obligations . . -- .
Multiple Class Mortgage-Backed
Securities . . -- .
Privately Issued Mortgage-Backed
Securities -- -- -- .
Stripped Mortgage-Backed Securities . . -- .
Non-Investment Grade Fixed
Income Securities -- -- -- --
Preferred Stock, Warrants and Rights -- -- -- --
Structured Securities* . . . .
Taxable Municipal Securities -- -- . --
Tax-Free Municipal Securities -- -- 80+ .
Temporary Investments . . ./5/ .
U.S. Government Securities . . . .
- -------------------------------------------------------------------------------
</TABLE>
* Limited to 15% of net assets (together with other illiquid securities) for
all structured securities which are not deemed to be liquid and all swap
transactions.
1 Adjustable Rate Government and Short Duration Government Funds may only
invest in asset-backed securities that are issued or guaranteed by U.S.
government agencies, instrumentalities or sponsored enterprises.
2 Includes issuers domiciled in one country and issuing securities denomi-
nated in the currency of another.
3 Of the Funds' investments in foreign securities, 10% of each Fund's total
assets in the aggregate may be invested in emerging country securities.
4 High Yield Municipal and High Yield Funds may invest up to 35% of their
respective total assets in investment grade securities under normal condi-
tions.
5 Short-Duration Tax-Free, Municipal Income and High Yield Municipal Funds
may invest no more than 20% of their net assets in taxable investments
under normal conditions.
18
<PAGE>
OTHER INVESTMENT PRACTICES AND SECURITIES
<TABLE>
<CAPTION>
Municipal Core Fixed Global High Yield
Income Income Income Municipal High Yield
Fund Fund Fund Fund Fund
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
. . . . .
-- . . -- .
. . -- . .
. . . . .
-- 10/3/ 10/3/ -- 25/7/
-- 25 25 -- ./7/
-- -- -- -- .
-- . . -- .
-- . . -- .
-- . . -- .
-- . . -- .
-- . . -- .
-- -- -- 65+/4/ 65+/4/
-- -- -- -- .
. . . . .
20 . -- 20 .
80+ . -- 80+ .
./5/ . . ./5/,/6/ ./6/
. . . . .
- -----------------------------------------------------------------------------------------------
</TABLE>
6 High Yield Municipal and High Yield Funds may for this purpose invest in
investment grade securities without limit.
7 The High Yield Fund may invest up to 25% of its total assets in securities
not denominated in U.S. dollars and in emerging country securities denomi-
nated in any currency.
19
<PAGE>
Principal Risks of the Funds
Loss of money is a risk of investing in each Fund. An investment in a Fund is
not a deposit of any bank and is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other governmental agency. The following
summarizes important risks that apply to the Funds and may result in a loss of
your investment. None of the Funds should be relied upon as a complete invest-
ment program. There can be no assurance that a Fund will achieve its investment
objective.
<TABLE>
<CAPTION>
..Applicable
- --Not Applicable
Adjustable Short- Short-
Rate Duration Duration Government
Government Government Tax-Free Income
Fund Fund Fund Fund
- ---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest Rate . . . .
Credit/Default . . . .
Call . . . .
Extension . . . .
Derivatives . . . .
U.S. Government Securities . . . .
Market . . . .
Management . . . .
Liquidity . . . .
Non-Diversification -- -- -- --
Foreign -- -- -- --
Emerging Countries -- -- -- --
Junk Bond -- -- -- --
Tax -- -- . --
- ---------------------------------------------------------------------
</TABLE>
20
<PAGE>
PRINCIPAL RISKS OF THE FUNDS
<TABLE>
<CAPTION>
Municipal Core Fixed Global High Yield
Income Income Income Municipal High Yield
Fund Fund Fund Fund Fund
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
. . . . .
. . . . .
. . . . .
. . . . .
. . . . .
. . . . .
. . . . .
. . . . .
. . . . .
-- -- . . --
-- . . -- .
-- . . -- .
-- -- -- . .
. -- -- . --
- --------------------------------------------------------------------------------------------
</TABLE>
21
<PAGE>
All Funds:
..Interest Rate Risk--The risk that when interest rates increase, fixed-income
securities held by a Fund will decline in value. Long-term fixed-income
securities will normally have more price volatility because of this risk than
short-term securities.
..Credit/Default Risk--The risk that an issuer or guarantor of fixed-income
securities held by a Fund (which may have low credit ratings) may default on
its obligation to pay interest and repay principal. With respect to the Short
Duration Tax-Free, Municipal Income and High Yield Municipal Funds, risk of
loss from payment default may exist where Municipal Securities are backed by
foreign letters of credit or guarantees.
..Call Risk--The risk that an issuer will exercise its right to pay principal on
an obligation held by a Fund (such as a Mortgage-Backed Security) earlier than
expected. This may happen when there is a decline in interest rates. Under
these circumstances, a Fund may be unable to recoup all of its initial
investment and will also suffer from having to reinvest in lower yielding
securities.
..Extension Risk--The risk that an issuer will exercise its right to pay
principal on an obligation held by a Fund (such as a Mortgage-Backed Security)
later than expected. This may happen when there is a rise in interest rates.
Under these circumstances, the value of the obligation will decrease, and a
Fund will also suffer from the inability to invest in higher yielding
securities.
..Derivatives Risk--The risk that loss may result from a Fund's investments in
options, futures, swaps, structured securities and other derivative
investments. These instruments may be leveraged so that small changes may
produce disproportionate losses to a Fund.
..U.S. Government Securities Risk--The risk that the U.S. government will not
provide financial support to U.S. government agencies, instrumentalities or
sponsored enterprises if it is not obligated to do so by law.
..Market Risk--The risk that the value of the securities in which a Fund invests
may go up or down in response to the prospects of individual companies and/or
general economic conditions. Price changes may be temporary or last for
extended periods.
..Management Risk--The risk that a strategy used by the Investment Adviser may
fail to produce the intended results.
..Liquidity Risk--The risk that a Fund will not be able to pay redemption
proceeds within the time period stated in this Prospectus because of unusual
market conditions, an unusually high volume of redemption requests, or other
reasons. Funds that invest in non-investment grade fixed income securities or
emerging country issuers will be especially subject to the risk that during
certain periods the liquidity of particular issuers or industries, or all
securities within these investment
22
<PAGE>
PRINCIPAL RISKS OF THE FUNDS
categories, will shrink or disappear suddenly and without warning as a result
of adverse economic, market or political events, or adverse investor
perceptions whether or not accurate. The Goldman Sachs Asset Allocation
Portfolios (the "Asset Allocation Portfolios") expect to invest a significant
percentage of their assets in the Funds and other funds for which Goldman
Sachs now or in the future acts as investment adviser or underwriter.
Redemptions by an Asset Allocation Portfolio of its position in a Fund may
further increase liquidity risk and may impact a Fund's net asset value
("NAV").
Specific Funds:
..Non-Diversification Risk--The Global Income and High Yield Municipal Funds are
non-diversified, meaning that each Fund is permitted to invest more of its
assets in fewer issuers than "diversified" mutual funds. Thus, each Fund may
be more susceptible to adverse developments affecting any single issuer held
in its portfolio, and may be more susceptible to greater losses because of
these developments. In addition, the Global Income Fund may invest more than
25% of its total assets in the securities of corporate and governmental
issuers located in each of Canada, Germany, Japan and the United Kingdom, as
well as in the securities of U.S. issuers. Concentration of the Global Income
Fund's investments in such issuers will subject the Fund, to a greater extent
than if investments were less concentrated, to losses arising from adverse
developments affecting those issuers or countries.
..Foreign Risk--The Core Fixed Income, Global Income and High Yield Funds will
be subject to risks of loss with respect to their foreign investments that are
not typically associated with domestic issuers. Loss may result because of
less foreign government regulation, less public information and less economic,
political and social stability. Loss may also result from the imposition of
exchange controls, confiscations and other government restrictions. The Funds
will also be subject to the risk of negative foreign currency rate fluctua-
tions. Foreign risks will normally be greatest when a Fund invests in issuers
located in emerging countries.
..Emerging Countries Risk--The Core Fixed Income, Global Income and High Yield
Funds may invest in emerging countries. The securities markets of Asian, Latin
American, Eastern European, African and other emerging countries are less liq-
uid, are especially subject to greater price volatility, have smaller market
capitalizations, have less government regulation and are not subject to as
extensive and frequent accounting, financial and other reporting requirements
as the securities markets of more developed countries. These risks are not
normally associated with investments in more developed countries.
23
<PAGE>
.."Junk Bond" Risk--The High Yield Municipal and High Yield Funds will invest in
non-investment grade fixed-income securities (commonly known as "junk bonds")
that are considered predominantly speculative by traditional investment
standards. Non-investment grade fixed-income securities and unrated securities
of comparable credit quality are subject to the increased risk of an issuer's
inability to meet principal and interest obligations. These securities may be
subject to greater price volatility due to such factors as specific corporate
or municipal developments, interest rate sensitivity, negative perceptions of
the junk bond markets generally and less secondary market liquidity.
..Tax Risk--The Short Duration Tax-Free, Municipal Income and High Yield Munici-
pal Funds may be more adversely impacted by changes in tax rates and policies
than the other Funds. Because interest income from Municipal Securities is
normally not subject to regular federal income taxation, the attractiveness of
Municipal Securities in relation to other investment alternatives is affected
by changes in federal income tax rates applicable to, or the continuing fed-
eral income tax-exempt status of, such interest income. Any proposed or actual
changes in such rates or exempt status, therefore, can significantly affect
the demand for and supply, liquidity and marketability of Municipal Securi-
ties. This could in turn affect a Fund's ability to acquire and dispose of
Municipal Securities at desirable yield and price levels. Additionally, these
Funds would not be a suitable investment for IRAs, other tax-exempt or tax-
deferred accounts or for other investors who are not sensitive to the federal,
state or local income tax consequences of their investments.
More information about the Funds' portfolio securities and investment tech-
niques, and their associated risks, is provided in Appendix A. You should con-
sider the investment risks discussed in this section and in Appendix A. Both
are important to your investment choice.
24
<PAGE>
Fund Performance
HOW THE FUNDS HAVE PERFORMED
The bar chart and table below provide an indication of the risks of invest-
ing in a Fund by showing: (a) changes in the performance of a Fund's Insti-
tutional Shares from year to year; and (b) how the average annual returns of
a Fund's Institutional Shares compare to those of broad-based securities
market indices. The bar chart and table assume reinvestment of dividends and
distributions. A Fund's past performance is not necessarily an indication of
how the Fund will perform in the future. Performance reflects expense limi-
tations in effect. If expense limitations were not in place, a Fund's per-
formance would have been reduced. The High Yield Municipal Fund as of the
date of this Prospectus had less than one calendar year's performance,
therefore, no performance information is provided in this section.
25
<PAGE>
Adjustable Rate Government Fund
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best Quarter
Q1 "95
2.26%
Worst Quarter
Q2 "94
0.14%
[GRAPH]
1992 1993 1994 1995 1996 1997 1998 1999
- ------ ------ ------ ------ ------ ------ ------ ------
5.57% 3.78% 1.94% 7.63% 6.68% 6.27% 4.05% 5.15%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
For the period ended December 31, 1999 1 Year 5 Years Since Inception
-----------------------------------------------------------------------------
<S> <C> <C> <C>
Institutional Shares (Inception 7/17/91) 5.15% 5.95% 5.29%
Six-Month U.S. Treasury Security* 4.64% 5.52% 5.01%
One-Year U.S. Treasury Security* 4.03% 5.85% 5.35%
Lehman Brothers Mutual Fund Short (1-2) U.S.
Government Index** 3.42% 6.27% 5.83%
-----------------------------------------------------------------------------
</TABLE>
* The Six-Month and One-Year U.S. Treasury Securities, as reported by Merrill
Lynch, do not reflect any fees or expenses.
** The Lehman Brothers Mutual Fund Short (1-2) U.S. Government Index, an
unmanaged index, does not reflect any fees or expenses.
26
<PAGE>
FUND PERFORMANCE
Short Duration Government Fund
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best Quarter
Q2 "89
5.10%
Worst Quarter
Q1 "94
-0.63%
[GRAPH]
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
9.08% 9.89% 6.00% 4.96% 0.45% 11.01% 5.82% 6.99% 5.74% 3.14%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
For the period ended December 31,
1999 1 Year 5 Years 10 Years Since Inception
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Institutional Shares (Inception
8/15/88) 3.14% 6.51% 6.27% 6.69%
Two-Year U.S. Treasury Security* 1.89% 6.10% 6.31% 6.77%
Lehman Brothers Mutual Fund Short
(1-3)
U.S. Government Index** 2.97% 6.47% 6.56% 6.93%
----------------------------------------------------------------------------
</TABLE>
* The Two-Year U.S. Treasury Security, as reported by Merrill Lynch, does not
reflect any fees or expenses.
** The Lehman Brothers Mutual Fund Short (1-3) U.S. Government Index, an
unmanaged index, does not reflect any fees or expenses.
27
<PAGE>
Short Duration Tax-Free Fund
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best Quarter
Q1 "93
2.20%
Worst Quarter
Q1 "94
-1.79%
[GRAPH]
1993 1994 1995 1996 1997 1998 1999
- ------ ------ ------ ------ ------ ------ ------
6.20% -0.45% 6.73% 4.71% 5.37% 4.69% 1.23%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
For the period ended December 31, 1999 1 Year 5 Years Since Inception
--------------------------------------------------------------------------
<S> <C> <C> <C>
Institutional Shares (Inception 10/1/92) 1.23% 4.53% 4.08%
Lehman Brothers Three-Year Municipal Bond
Index* 1.97% 5.17% 4.63%
--------------------------------------------------------------------------
</TABLE>
*The Lehman Brothers Three-Year Municipal Bond Index, an unmanaged index,
does not reflect any fees or expenses.
28
<PAGE>
FUND PERFORMANCE
Government Income Fund
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best Quarter
Q3 "98
4.30%
Worst Quarter
Q2 "99
-0.98%
[GRAPH]
1998 1999
- ------ ------
7.89% -0.83%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
For the period ended December 31, 1999 1 Year Since Inception
--------------------------------------------------------------------------
<S> <C> <C>
Institutional Shares (Inception 8/15/97) (0.83)% 4.74%
Lehman Brothers Mutual Fund Government/Mortgage
Index* (0.54)% 5.34%
--------------------------------------------------------------------------
</TABLE>
*The Lehman Brothers Mutual Fund Government/Mortgage Index, an unmanaged
index, does not reflect any fees or expenses.
29
<PAGE>
Municipal Income Fund
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best Quarter
Q3 "98
2.81%
Worst Quarter
Q2 "99
-2.80%
[GRAPH]
1998 1999
- ------ ------
5.87% -4.59%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
For the period ended December 31, 1999 1 Year Since Inception
------------------------------------------------------------------------
<S> <C> <C>
Institutional Shares (Inception 8/15/97) (4.59)% 2.41%
Lehman Brothers 15-Year Municipal Bond Index* (2.50)% 3.81%
------------------------------------------------------------------------
</TABLE>
* The Lehman Brothers 15-Year Municipal Bond Index, an unmanaged index, is a
total return performance benchmark for the 15-year maturity, investment-
grade tax-exempt bond market. The Index figures do not reflect any fees or
expenses.
30
<PAGE>
FUND PERFORMANCE
Core Fixed Income Fund
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best Quarter
Q2"95
5.99%
Worst Quarter
Q1"96
-1.89%
[GRAPH]
1995 1996 1997 1998 1999
- ------ ------ ------ ------ ------
18.09% 4.02% 9.51% 7.96% -1.02%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
For the period ended December 31, 1999 1 Year 5 Years Since Inception
--------------------------------------------------------------------------
<S> <C> <C> <C>
Institutional Shares (Inception 1/5/94) (1.02)% 7.53% 5.85%
Lehman Brothers Aggregate Bond Index* (0.82)% 7.73% 5.89%
--------------------------------------------------------------------------
</TABLE>
*The Lehman Brothers Aggregate Bond Index represents an unmanaged diversified
portfolio of fixed-income securities, including U.S. Treasuries, investment-
grade corporate bonds, and mortgage-backed and asset-backed securities. The
Index figures do not reflect any fees or expenses.
31
<PAGE>
Global Income Fund
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best Quarter
Q3 "98
5.70%
Worst Quarter
Q2 "99
-1.60%
[GRAPH]
1996 1997 1998 1999
- ------ ------ ------ ------
9.89% 10.31% 10.85% -0.89%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
For the period ended December 31, 1999 1 Year 3 Years Since Inception
---------------------------------------------------------------------------
<S> <C> <C> <C>
Institutional Shares (Inception 8/1/95) (0.89)% 6.62% 8.57%
J.P. Morgan Global Government Bond Index
(hedged)* 0.72 % 7.55% 8.60%
---------------------------------------------------------------------------
</TABLE>
* The J.P. Morgan Global Government Bond Index (hedged), an unmanaged index,
does not reflect any fees or expenses.
32
<PAGE>
FUND PERFORMANCE
High Yield Fund
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best Quarter
Q4 "98
5.13%
Worst Quarter
Q3 "98
-6.52%
[GRAPH]
1998 1999
- ------ ------
3.32% 4.89%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
For the period ended December 31, 1999 1 Year Since Inception
------------------------------------------------------------------------------
<S> <C> <C>
Institutional Shares (Inception 8/1/97) 4.89% 5.21%
Lehman Brothers U.S. Corporate High Yield Bond Index* 2.39% 3.30%
------------------------------------------------------------------------------
</TABLE>
*The Lehman Brothers U.S. Corporate High Yield Bond Index is a total return
performance benchmark for fixed-income securities having a maximum quality
rating of Ba1, a minimum amount outstanding of $100 million and at least one
year to maturity. The Index is unmanaged and does not reflect any fees or
expenses.
33
<PAGE>
Fund Fees and Expenses (Institutional Shares)
This table describes the fees and expenses that you would pay if you buy and
hold Institutional Shares of a Fund.
<TABLE>
<CAPTION>
Adjustable Short Short
Rate Duration Duration
Government Government Tax-Free
Fund Fund Fund
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Shareholder Fees
(fees paid directly from your investment):
Maximum Sales Charge (Load) Imposed on
Purchases None None None
Maximum Deferred Sales Charge (Load) None None None
Maximum Sales Charge (Load) Imposed on
Reinvested Dividends None None None
Redemption Fees None None None
Exchange Fees None None None
Annual Fund Operating Expenses
(expenses that are deducted from Fund
assets):/1/
Management Fees/2/ 0.40% 0.50% 0.40%
Distribution and Service Fees None None None
Other Expenses/3/ 0.13% 0.17% 0.26%
- --------------------------------------------------------------------------
Total Fund Operating Expenses* 0.53% 0.67% 0.66%
- --------------------------------------------------------------------------
</TABLE>
See page 36 for all other footnotes.
* As a result of the current waivers and expense limi-
tations, "Other Expenses" and "Total Fund Operating
Expenses" of the Funds which are actually incurred
are as set forth below. The waivers and expense limi-
tations may be terminated at any time at the option
of the Investment Adviser. If this occurs, "Other
Expenses" and "Total Fund Operating Expenses" may
increase without shareholder approval.
<TABLE>
<CAPTION>
Adjustable Short Short
Rate Duration Duration
Government Government Tax-Free
Fund Fund Fund
----------------------------------------------------------------------------------
<S> <C> <C> <C>
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets):/1/
Management Fees/2/ 0.40% 0.50% 0.35%
Distribution and Service Fees None None None
Other Expenses/3/ 0.09% 0.04% 0.04%
----------------------------------------------------------------------------------
Total Fund Operating Expenses (after current
waivers and expense limitations) 0.49% 0.54% 0.39%
----------------------------------------------------------------------------------
</TABLE>
34
<PAGE>
FUND FEES AND EXPENSES
<TABLE>
<CAPTION>
Government Municipal Core Fixed Global High Yield
Income Income Income Income Municipal High Yield
Fund Fund Fund Fund Fund Fund
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
None None None None None None
None None None None None None
None None None None None None
None None None None None None
None None None None None None
0.65% 0.55% 0.40% 0.90% 0.55% 0.70%
None None None None None None
0.28% 0.19% 0.18% 0.17% 0.44% 0.12%
- ----------------------------------------------------------------------------------------
0.93% 0.74% 0.58% 1.07% 0.99% 0.82%
- ----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Government Municipal Core Fixed Global High Yield
Income Income Income Income Municipal High Yield
Fund Fund Fund Fund Fund Fund
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
0.54% 0.50% 0.40% 0.65% 0.55% 0.70%
None None None None None None
0.04% 0.04% 0.14% 0.04% 0.04% 0.06%
---------------------------------------------------------------------------------
0.58% 0.54% 0.54% 0.69% 0.59% 0.76%
---------------------------------------------------------------------------------
</TABLE>
35
<PAGE>
Fund Fees and Expenses continued
/1/The Funds' annual operating expenses are based on actual expenses, except
for the High Yield Municipal Fund which are based on estimated amounts for
the current fiscal year.
/2/The Investment Adviser has voluntarily agreed not to impose a portion of
the management fee on the Short Duration Tax-Free, Government Income, Munici-
pal Income and Global Income Funds equal to 0.05%, 0.11%, 0.05% and 0.25%,
respectively of such Fund's average daily net assets. As a result of fee
waivers, the current management fees of the Short Duration Tax-Free, Govern-
ment Income, Municipal Income and Global Income Funds are 0.35%, 0.54%, 0.50%
and 0.65%, respectively, of such Funds' average daily net assets. The waivers
may be terminated at any time at the option of the Investment Adviser.
/3/"Other Expenses" include transfer agency fees equal to 0.04% of the aver-
age daily net assets of each Fund's Institutional Shares, plus all other
ordinary expenses not detailed above. The Investment Adviser has voluntar-
ily agreed to reduce or limit "Other Expenses" of each Fund (excluding man-
agement fees, transfer agency fees, taxes, interest and brokerage fees and
litigation, indemnification and other extraordinary expenses) to the fol-
lowing percentages of each Fund's average daily net assets:
<TABLE>
<CAPTION>
Other
Fund Expenses
-------------------------------------
<S> <C>
Adjustable Rate Government 0.05%
Short Duration Government 0.00%
Short Duration Tax-Free 0.00%
Government Income 0.00%
Municipal Income 0.00%
Core Fixed Income 0.10%
Global Income 0.00%
High Yield Municipal 0.00%
High Yield 0.02%
</TABLE>
36
<PAGE>
FUND FEES AND EXPENSES
Example
The following Example is intended to help you compare the cost of investing in
a Fund (without the waivers and expense limitations) with the cost of investing
in other mutual funds. The Example assumes that you invest $10,000 in Institu-
tional shares of a Fund for the time periods indicated and then redeem all of
your Institutional Shares at the end of those periods. The Example also assumes
that your investment has a 5% return each year and that a Fund's operating
expenses remain the same. Although your actual costs may be higher or lower,
based on these assumptions your costs would be:
<TABLE>
<CAPTION>
Fund 1 Year 3 Years 5 Years 10 Years
- -----------------------------------------------------------
<S> <C> <C> <C> <C>
Adjustable Rate Government $ 54 $170 $296 $ 665
- -----------------------------------------------------------
Short Duration Government $ 68 $214 $373 $ 835
- -----------------------------------------------------------
Short Duration Tax-Free $ 67 $211 $368 $ 822
- -----------------------------------------------------------
Government Income $ 95 $296 $515 $1,143
- -----------------------------------------------------------
Municipal Income $ 76 $237 $411 $ 918
- -----------------------------------------------------------
Core Fixed Income $ 59 $186 $324 $ 726
- -----------------------------------------------------------
Global Income $109 $340 $590 $1,306
- -----------------------------------------------------------
High Yield Municipal $101 $315 N/A N/A
- -----------------------------------------------------------
High Yield $ 84 $262 $455 $1,014
- -----------------------------------------------------------
</TABLE>
Institutions that invest in Institutional Shares on behalf of their customers
may charge other fees directly to their customer accounts in connection with
their investments. You should contact your institution for information regard-
ing such charges. Such fees, if any, may affect the return such customers real-
ize with respect to their investments.
Certain institutions that invest in Institutional Shares may receive other com-
pensation in connection with the sale and distribution of Institutional Shares
or for services to their customers' accounts and/or the Funds. For additional
information regarding such compensation, see "Shareholder Guide" in the Pro-
spectus and "Other Information" in the Statement of Additional Information
("Additional Statement").
37
<PAGE>
Service Providers
INVESTMENT ADVISERS
<TABLE>
<CAPTION>
Investment Adviser Fund
------------------------------------------------------
<S> <C>
Goldman Sachs Asset
Management ("GSAM") Short Duration Tax-Free
32 Old Slip Government Income
New York, New York 10005 Municipal Income
Core Fixed Income
High Yield Municipal
High Yield
------------------------------------------------------
Goldman Sachs Funds
Management, L.P.
("GSFM") Adjustable Rate Government
32 Old Slip Short Duration Government
New York, New York 10005
------------------------------------------------------
Goldman Sachs Asset
Management International
("GSAMI") Global Income
133 Peterborough Court
London EC4A 2BB
England
------------------------------------------------------
</TABLE>
As of September 1, 1999, the Investment Management Division ("IMD") was
established as a new operating division of Goldman Sachs. This newly created
entity includes GSAM, GSAMI and GSFM. Goldman Sachs registered as an invest-
ment adviser in 1981. GSAMI, a member of the Investment Management Regula-
tory Organization Limited since 1990 and a registered investment adviser
since 1991, is an affiliate of Goldman Sachs. GSFM, a registered investment
adviser since 1990, is a Delaware limited partnership which is an affiliate
of Goldman Sachs. The Goldman Sachs Group, L.P., which controlled the
Investment Advisers, merged into the Goldman Sachs Group, Inc. as a result
of an initial public offering. As of December 31, 1999, GSAM, GSAMI and
GSFM, along with other units of IMD, had assets under management of $258.5
billion.
The Investment Adviser provides day-to-day advice regarding the Funds' port-
folio transactions. The Investment Adviser makes the investment decisions
for the Funds and places purchase and sale orders for the Funds' portfolio
transactions in U.S. and foreign markets. As permitted by applicable law,
these orders may be directed to any brokers, including Goldman Sachs and its
affiliates. While the Investment Adviser is ultimately responsible for the
management of the Funds, it is able to draw upon the research and expertise
of its asset management affiliates for portfolio decisions and management
with respect to certain portfolio securities. In addition, the Investment
Adviser has access to the research and certain
38
<PAGE>
SERVICE PROVIDERS
proprietary technical models developed by Goldman Sachs, and will apply
quantitative and qualitative analysis in determining the appropriate alloca-
tions among categories of issuers and types of securities.
The Investment Adviser also performs the following additional services for
the Funds:
..Supervises all non-advisory operations of the Funds
..Provides personnel to perform necessary executive, administrative and
clerical services to the Funds
..Arranges for the preparation of all required tax returns, reports to
shareholders, prospectuses and statements of additional information and
other reports filed with the Securities and Exchange Commission (the "SEC")
and other regulatory authorities
..Maintains the records of each Fund
..Provides office space and all necessary office equipment and services
MANAGEMENT FEES
As compensation for its services and its assumption of certain expenses, the
Investment Adviser is entitled to the following fees, computed daily and
payable monthly, at the annual rates listed below (as a percentage of each
respective Fund's average daily net assets):
<TABLE>
<CAPTION>
Actual Rate for the
Fiscal Period Ended
Contractual Rate October 31, 1999
-----------------------------------------------------------------
<S> <C> <C>
GSAM:
-----------------------------------------------------------------
Short Duration Tax-Free 0.40% 0.35%
-----------------------------------------------------------------
Government Income 0.65% 0.54%
-----------------------------------------------------------------
Municipal Income 0.55% 0.50%
-----------------------------------------------------------------
Core Fixed Income 0.40% 0.40%
-----------------------------------------------------------------
High Yield Municipal 0.55% N/A
-----------------------------------------------------------------
High Yield 0.70% 0.70%
-----------------------------------------------------------------
GSFM:
-----------------------------------------------------------------
Adjustable Rate Government 0.40% 0.40%
-----------------------------------------------------------------
Short Duration Government 0.50% 0.50%
-----------------------------------------------------------------
GSAMI:
-----------------------------------------------------------------
Global Income 0.90% 0.65%
-----------------------------------------------------------------
</TABLE>
The difference, if any, between the stated fees and the actual fees paid by
the Funds reflects that the Investment Adviser did not charge the full
amount of the fees to which it would have been entitled. The Investment
Adviser may discontinue or modify any such voluntary limitations in the
future at its discretion.
39
<PAGE>
FUND MANAGERS
Fixed Income Portfolio Management Team
..The fixed-income portfolio management team is comprised of a deep team of
sector specialists
..The team strives to maximize risk-adjusted returns by de-emphasizing
interest rate anticipation and focusing on security selection and sector
allocation
..The team manages approximately $50.5 billion in fixed-income assets for
retail, institutional and high net worth clients
U.S. Fixed Income-Investment Management Team
<TABLE>
<CAPTION>
Years Primarily
Name and Title Fund Responsibility Responsible Five Year Employment History
- ---------------------------------------------------------------------------------------------
<C> <C> <C> <S>
Jonathan A. Senior Portfolio Since Mr. Beinner joined the
Beinner Manager-- Adjustable Rate Investment Adviser in
Managing Government 1992 1990. He became a
Director and Short Duration Government 1992 portfolio manager in
Co-Head U.S. Government Income 1992 1992.
Fixed Income Core Fixed Income 1992
- ---------------------------------------------------------------------------------------------
James B. Clark Portfolio Manager-- Since Mr. Clark joined the
Vice President Adjustable Rate Investment Adviser in
Government 1994 1994 as a portfolio
Short Duration Government 1994 manger after working as
Government Income 1994 an investment manager in
Core Fixed Income 2000 the mortgage-backed
securities group at
Travelers Insurance
Company.
- ---------------------------------------------------------------------------------------------
Peter A. Dion Portfolio Manager-- Since Mr. Dion joined the
Vice President Adjustable Rate Investment Adviser in
Government 1995 1992. From 1994 to 1995
Short Duration Government 1995 he was an associate
portfolio manager. He
became a portfolio
manager in 1995.
- ---------------------------------------------------------------------------------------------
C. Richard Lucy Since Mr. Lucy joined the
Managing Senior Portfolio Investment Adviser in
Director and Manager-- Adjustable Rate 1992 as a portfolio
Co-Head U.S. Government 1992 manager.
Fixed Income Short Duration Government 1992
Government Income 1992
Core Fixed Income 1992
- ---------------------------------------------------------------------------------------------
James P. Portfolio Manager-- Since Mr. McCarthy joined the
McCarthy Adjustable Rate Investment Adviser in
Vice President Government 1995 1995 as a portfolio
Short Duration Government 1995 manager after working
four years at Nomura
Securities, where he was
an assistant vice
president and an
adjustable rate mortgage
trader.
- ---------------------------------------------------------------------------------------------
</TABLE>
40
<PAGE>
SERVICE PROVIDERS
U.S. Fixed Income-Municipal Investment Management Team
<TABLE>
<CAPTION>
Years Primarily
Name and Title Fund Responsibility Responsible Five Year Employment History
- ------------------------------------------------------------------------------------
<C> <C> <C> <S>
Ben Barber Portfolio Manager-- Since Mr. Barber joined the
Vice President Short Duration Tax- 1999 Investment Adviser in
Free 1999 1999 as a portfolio
Municipal Income 2000 manager. Prior to his
High Yield current position, he
Municipal managed high yield
municipal and municipal
bond funds at Franklin
Templeton for eight
years.
- ------------------------------------------------------------------------------------
Tom Kenny Senior Since Mr. Kenny joined the
Managing Portfolio Manager-- 1999 Investment Adviser in
Director and Short Duration Tax- 1999 1999 as a senior
Head of Free 2000 portfolio manager.
Municipal Bond Municipal Income Previously, he spent 13
Portfolio High Yield years at Franklin
Management Municipal Templeton where he was a
portfolio manager of high
yield municipal and
municipal funds, Director
of Municipal Research and
Director of the Municipal
Bond Department.
- ------------------------------------------------------------------------------------
</TABLE>
U.S. Fixed Income-High Yield Investment Management Team
<TABLE>
<CAPTION>
Years Primarily
Name and Title Fund Responsibility Responsible Five Year Employment History
- ----------------------------------------------------------------------------------------------
<C> <C> <C> <S>
Rachel Golder Portfolio Manager-- Since Ms. Golder joined the
Vice President High Yield 1997 Investment Adviser in
and Director of 1997 as a portfolio
High Yield manager. She is
Credit Research responsible for managing
high yield assets. Prior
to joining the
Investment Adviser, she
spent six years at Saudi
International Bank as a
high yield credit
analyst and portfolio
manager.
- ----------------------------------------------------------------------------------------------
Andrew Jessop Senior Portfolio Manager-- Since Mr. Jessop joined the
Vice President High Yield 1997 Investment Adviser in
1997 as a portfolio
manager. He is
responsible for managing
high yield assets.
Previously, he worked
six years managing high
yield portfolios at
Saudi International Bank
in London.
- ----------------------------------------------------------------------------------------------
Michael L. Senior Portfolio Manager-- Since Mr. Pasternak is a
Pasternak High Yield 1997 product manager for high
Vice President yield assets and
contributes to the
management of high yield
assets. He joined the
Investment Adviser in
1997 as a portfolio
manager. Prior to that,
he spent eight years
managing high yield
corporate bond and loan
portfolios at Saudi
International Bank in
London.
- ----------------------------------------------------------------------------------------------
</TABLE>
41
<PAGE>
<TABLE>
<CAPTION>
Years Primarily
Name and Title Fund Responsibility Responsible Five Year Employment History
- ----------------------------------------------------------------------------------
<C> <C> <C> <S>
Christopher Portfolio Since Mr. Testa joined the
Testa Manager-- 1997 Investment Adviser in 1994.
Vice President High Yield He became a portfolio
manager in 1996. He has
been responsible for
managing high yield assets
since 1997.
- ----------------------------------------------------------------------------------
</TABLE>
Global Fixed Income--Investment Management Team
<TABLE>
<CAPTION>
Years Primarily
Name and Title Fund Responsibility Responsible Five Year Employment History
- ----------------------------------------------------------------------------------
<C> <C> <C> <S>
Stephen Senior Portfolio Since Mr. Fitzgerald joined the
Fitzgerald Manager-- 1992 Investment Adviser in 1992
Managing Global Income as a portfolio manager.
Director and
Chief
Investment
Officer for
International
Fixed Income
- ----------------------------------------------------------------------------------
Philip Moffitt Portfolio Since Philip joined the
Executive Manager-- 2000 Investment Adviser in 1999
Director; Global Income as a portfolio manager.
Senior Currency Fund Prior to joining the
Portfolio Investment Adviser he
Manager worked for three years as a
proprietary trader for
Tokai Asia Ltd in Hong
Kong. Before that Philip
spent ten years with
Bankers Trust Asset
Management in Australia,
where he was a Managing
Director responsible for
all active global fixed
income funds as well as a
member of the Asset
Allocation Committee.
- ----------------------------------------------------------------------------------
Andrew Wilson Portfolio Since Mr. Wilson joined the
Managing Manager-- 1995 Investment Adviser in 1995
Director Global Income as a portfolio manager.
Prior to his current
position, he spent three
years as an Assistant
Director at Rothschild
Asset Management, where he
was responsible for
managing global and
international bond
portfolios with specific
focus on the U.S.,
Canadian, Australian and
Japanese economies.
- ----------------------------------------------------------------------------------
</TABLE>
42
<PAGE>
SERVICE PROVIDERS
<TABLE>
<CAPTION>
Years Primarily
Name and Title Fund Responsibility Responsible Five Year Employment History
- ----------------------------------------------------------------------------------
<C> <C> <C> <S>
Jennifer Youde Portfolio Since Jennifer joined the
Executive Manager-- 2000 Investment Adviser in 1996
Director Global Income as a portfolio manager and
Fund is a member of the Global
Bond Team. Prior to this,
she was at CINMan for
thirteen years, where she
ran the Japanese and Far
Eastern equity portfolios
for six years, before
taking over the management
of the global bond and
index-linked portfolios.
- ----------------------------------------------------------------------------------
</TABLE>
DISTRIBUTOR AND TRANSFER AGENT
Goldman Sachs, 85 Broad Street, New York, New York 10004, serves as the
exclusive distributor (the "Distributor") of each Fund's shares. Goldman
Sachs, 4900 Sears Tower, Chicago, Illinois 60606-6372, also serves as the
Funds' transfer agent (the "Transfer Agent") and, as such, performs various
shareholder servicing functions.
From time to time, Goldman Sachs or any of its affiliates may purchase and
hold shares of the Funds. Goldman Sachs reserves the right to redeem at any
time some or all of the shares acquired for its own account.
43
<PAGE>
ACTIVITIES OF GOLDMAN SACHS AND ITS AFFILIATES AND OTHER ACCOUNTS MANAGED BY
GOLDMAN SACHS
The involvement of the Investment Adviser, Goldman Sachs and their affili-
ates in the management of, or their interest in, other accounts and other
activities of Goldman Sachs may present conflicts of interest with respect
to a Fund or limit a Fund's investment activities. Goldman Sachs and its
affiliates engage in proprietary trading and advise accounts and funds which
have investment objectives similar to those of the Funds and/or which engage
in and compete for transactions in the same types of securities, currencies
and instruments as the Funds. Goldman Sachs and its affiliates will not have
any obligation to make available any information regarding their proprietary
activities or strategies, or the activities or strategies used for other
accounts managed by them, for the benefit of the management of the Funds.
The results of a Fund's investment activities, therefore, may differ from
those of Goldman Sachs and its affiliates, and it is possible that a Fund
could sustain losses during periods in which Goldman Sachs and its affili-
ates and other accounts achieve significant profits on their trading for
proprietary or other accounts. In addition, the Funds may, from time to
time, enter into transactions in which other clients of Goldman Sachs have
an adverse interest. A Fund's activities may be limited because of regula-
tory restrictions applicable to Goldman Sachs and its affiliates, and/or
their internal policies designed to comply with such restrictions.
YEAR 2000
Goldman Sachs spent a total of approximately $185 million over the past sev-
eral years to address the potential hardware, software and other computer
and technology issues and related concerns associated with the transition to
Year 2000 and to confirm that its service providers did the same. As a
result of those efforts, Goldman Sachs has not experienced any material dis-
ruptions in its operations in connection with, or following, the transition
to the Year 2000.
44
<PAGE>
Dividends
Over the course of the fiscal year, dividends accrued and paid will constitute
all or substantially all of the Funds' net investment income. The Funds also
intend that all net realized capital gains (after taking into account any
available capital loss carryovers) will be declared as a dividend at least
annually. You may choose to have dividends paid in:
..Cash
..Additional shares of the same class of the same Fund
..Shares of the same or an equivalent class of another Goldman Sachs Fund.
Special restrictions may apply for certain ILA Portfolios. See the Additional
Statement.
You may indicate your election on your Account Application. Any changes may be
submitted in writing to Goldman Sachs at any time before the record date for a
particular dividend or distribution. If you do not indicate any choice, your
dividends and distributions will be reinvested automatically in the applicable
Fund. If cash dividends are elected with respect to the Fund's monthly net
investment income dividends, then cash dividends must also be elected with
respect to the non-long-term capital gains component, if any, of the Fund's
annual dividend.
The election to reinvest dividends and distributions in additional shares will
not affect the tax treatment of such dividends and distributions, which will be
treated as received by you and then used to purchase the shares.
Dividends from net investment income and distributions from capital gains are
declared and paid as follows:
<TABLE>
<CAPTION>
Investment Income Capital Gains
Dividends Distributions
------------------ -----------------
Fund Declared Paid Declared and Paid
- ----------------------------------------------------------------
<S> <C> <C> <C>
Adjustable Rate Government Daily Monthly Annually
- ----------------------------------------------------------------
Short Duration Government Daily Monthly Annually
- ----------------------------------------------------------------
Short Duration Tax-Free Daily Monthly Annually
- ----------------------------------------------------------------
Government Income Daily Monthly Annually
- ----------------------------------------------------------------
Municipal Income Daily Monthly Annually
- ----------------------------------------------------------------
Core Fixed Income Daily Monthly Annually
- ----------------------------------------------------------------
Global Income Monthly Monthly Annually
- ----------------------------------------------------------------
High Yield Municipal Daily Monthly Annually
- ----------------------------------------------------------------
High Yield Daily Monthly Annually
- ----------------------------------------------------------------
</TABLE>
From time to time a portion of a Fund's dividends may constitute a return of
capital.
45
<PAGE>
At the time of an investor's purchase of shares of a Fund, a portion of the NAV
per share may be represented by undistributed income or undistributed realized
appreciation of the Fund's portfolio securities. Therefore, subsequent distri-
butions on such shares from such income or realized appreciation may be taxable
to you even if the NAV of the shares is, as a result of the distributions,
reduced below the cost of such shares and the distributions (or portions there-
of) represent a return of a portion of the purchase price.
46
<PAGE>
Shareholder Guide
The following section will provide you with answers to some of the most
often asked questions regarding buying and selling the Funds' Institutional
Shares.
HOW TO BUY SHARES
How Can I Purchase Institutional Shares Of The Funds?
You may purchase Institutional Shares on any business day at their NAV next
determined after receipt of an order. No sales load is charged. You should
place an order with Goldman Sachs at 1-800-621-2550 and either:
..Wire federal funds to The Northern Trust Company ("Northern"), as
subcustodian for State Street Bank and Trust Company ("State Street") (each
Fund's custodian) on the next business day; or
..Send a check or Federal Reserve draft payable to Goldman Sachs Funds--(Name
of Fund and Class of Shares), 4900 Sears Tower--60th Floor, Chicago, IL
60606-6372. The Fund will not accept a check drawn on a foreign bank or a
third-party check.
In order to make an initial investment in a Fund, you must furnish to the
Fund or Goldman Sachs the Account Application attached to this Prospectus.
Purchases of Institutional Shares must be settled within three business days
of receipt of a complete purchase order.
How Do I Purchase Shares Through A Financial Institution?
Certain institutions (including banks, trust companies, brokers and invest-
ment advisers) that provide recordkeeping, reporting and processing services
to their customers may be authorized to accept, on behalf of Goldman Sachs
Trust (the "Trust"), purchase, redemption and exchange orders placed by or
on behalf of their customers and may designate other intermediaries to
accept such orders, if approved by the Trust. In these cases:
..A Fund will be deemed to have received an order in proper form when the
order is accepted by the authorized institution or intermediary on a busi-
ness day, and the order will be priced at the Fund's NAV next determined
after such acceptance.
..Authorized institutions or intermediaries will be responsible for transmit-
ting accepted orders and payments to the Trust within the time period
agreed upon by them.
You should contact your institution or intermediary directly to learn
whether it is authorized to accept orders for the Trust.
47
<PAGE>
These institutions may receive payments from the Funds or Goldman Sachs for
the services provided by them with respect to the Funds' Institutional
Shares. These payments may be in addition to other payments borne by the
Funds.
The Investment Adviser, Distributor and/or their affiliates may pay addi-
tional compensation from time to time, out of their assets and not as an
additional charge to the Funds, to certain institutions and other persons in
connection with the sale, distribution and/or servicing of shares of the
Funds and other Goldman Sachs Funds. Additional compensation based on sales
may, but is currently not expected to, exceed 0.50% (annualized) of the
amount invested.
In addition to Institutional Shares, each Fund also offers other classes of
shares to investors. These other share classes are subject to different fees
and expenses (which affect performance), have different minimum investment
requirements and are entitled to different services than Institutional
Shares. Information regarding these other share classes may be obtained from
your sales representative or from Goldman Sachs by calling the number on the
back cover of this Prospectus.
48
<PAGE>
SHAREHOLDER GUIDE
What is My Minimum Investment in the Funds?
<TABLE>
<CAPTION>
Fund Type of Investor Minimum Investment
----------------------------------------------------------------------------------
<S> <C> <C>
Adjustable Rate .Any investor $50,000 alone or in
Government combination with
Short Duration Institutional Shares
Government of other Goldman
Short Duration Tax-Free Sachs Funds
Core Fixed Income
----------------------------------------------------------------------------------
Government Income .Individual investors $10,000,000
Municipal Income .Qualified non-profit
Global Income organizations, charitable
High Yield Municipal trusts, foundations and
High Yield endowments
.Accounts over which
GSAM or its advisory
affiliates have investment
discretion
----------------------------------------------------------------------------------
Government Income .Banks, trust companies $1,000,000 in
Municipal Income or other depository institutions Institutional Shares
Global Income investing for their own account of a Fund alone or
High Yield Municipal or on behalf of their clients in combination with
High Yield .Pension and profit sharing other assets under
plans, pension funds and other the management of
company-sponsored benefit plans GSAM and its affiliates
.State, county, city or any
instrumentality, department,
authority or agency thereof
.Corporations with at least
$100 million in assets or in
outstanding publicly traded
securities
."Wrap" account sponsors
(provided they have an agreement
covering the arrangement with
GSAM)
.Registered investment advisers
investing for accounts for which
they receive asset-based fees
----------------------------------------------------------------------------------
</TABLE>
The minimum investment requirement may be waived for current and former
officers, partners, directors or employees of Goldman Sachs or any of its
affiliates or for other investors at the discretion of the Trust's officers.
No minimum amount is required for subsequent investments.
49
<PAGE>
What Else Should I Know About Share Purchases?
The Trust reserves the right to:
..Modify or waive the minimum investment amounts.
..Reject or restrict any purchase or exchange orders by a particular pur-
chaser (or group of related purchasers). This may occur, for example, when
a pattern of frequent purchases, sales or exchanges of Institutional Shares
of a Fund is evident, or if purchases, sales or exchanges are, or a subse-
quent abrupt redemption might be, of a size that would disrupt management
of a Fund.
..Close a Fund to new investors from time to time and reopen any such Fund
whenever it is deemed appropriate by a Fund's Investment Adviser.
The Funds may allow you to purchase shares with securities instead of cash
if consistent with a Fund's investment policies and operations and if
approved by the Fund's Investment Adviser.
How Are Shares Priced?
The price you pay or receive when you buy, sell or exchange Institutional
Shares is determined by a Fund's NAV. The Funds calculate NAV as follows:
(Value of Assets of the Class)
- (Liabilities of the Class)
NAV = -----------------------------------------
Number of Outstanding Shares of the Class
The Funds' investments are valued based on market quotations, which may be
furnished by a pricing service or provided by securities dealers. If accu-
rate quotations are not readily available, the fair value of the Funds'
investments may be determined based on yield equivalents, a pricing matrix
or other sources, under valuation procedures established by the Trustees.
Debt obligations with a remaining maturity of 60 days or less are valued at
amortized cost.
..NAV per share of each class is calculated by State Street on each business
day as of the close of regular trading on the New York Stock Exchange (nor-
mally 4:00 p.m. New York time). This occurs after the determination, if
any, of income declared as a dividend (except in the case of the Global
Income Fund). Fund shares will not be priced on any day the New York Stock
Exchange is closed.
..When you buy shares, you pay the NAV next calculated after the Funds
receive your order in proper form.
..When you sell shares, you receive the NAV next calculated after the Funds
receive your order in proper form.
Note: The time at which transactions and shares are priced and the time by
which orders must be received may be changed in case of an emergency or if
regular trading on the New York Stock Exchange is stopped at a time other
than 4:00 p.m. New York time.
50
<PAGE>
SHAREHOLDER GUIDE
Foreign securities may trade in their local markets on days a Fund is
closed. As a result, the NAV of a Fund that holds foreign securities may be
impacted on days when investors may not purchase or redeem Fund shares.
In addition, the impact of events that occur after the publication of market
quotations used by a Fund to price its securities (for example, in foreign
markets) but before the close of regular trading on the New York Stock
Exchange will normally not be reflected in a Fund's next determined NAV
unless the Trust, in its discretion, makes an adjustment in light of the
nature and materiality of the event, its effect on Fund operations and other
relevant factors.
When Will Shares Be Issued And Dividends Begin To Be Paid?
Global Income Fund: If a purchase order is received in proper form before
the Fund's NAV is determined, shares will be issued the same day and will be
entitled to any dividend declared which have a record date on or after such
purchase date.
For all other Funds:
..Shares Purchased by Federal Funds Wire:
.If a purchase order in proper form specifies a settlement date and is
received before the Fund's NAV is determined that day, shares will be
issued and dividends will begin to accrue on the purchased shares on the
later of (i) the business day after the purchase order is received; or
(ii) the day that the federal funds wire is received by State Street.
.If a purchase order in proper form does not specify a settlement date,
shares will be issued and dividends will begin to accrue on the business
day after payment is received.
..Shares Purchased By Check or Federal Reserve Draft:
.If a purchase order in proper form specifies a settlement date and is
received before the Fund's NAV is determined that day, shares will be
issued and dividends will begin to accrue on the business day after pay-
ment is received.
.If a purchase order in proper form does not specify a settlement date,
shares will be issued and dividends will begin to accrue on the business
day after payment is received.
HOW TO SELL SHARES
How Can I Sell Institutional Shares Of The Funds?
You may arrange to take money out of your account by selling (redeeming)
some or all of your shares. Generally, each Fund will redeem its Institu-
tional Shares upon request on any business day at their NAV next determined
after receipt of such request in proper form. You may request that redemp-
tion proceeds be
51
<PAGE>
sent to you by check or by wire (if the wire instructions are on record).
Redemptions may be requested in writing or by telephone.
<TABLE>
<CAPTION>
Instructions For Redemptions:
-------------------------------------------------------------------
<S> <C> <C>
By Writing: .Write a letter of instruction that includes:
.Your name(s) and signature(s)
.Your account number
.The Fund name and Class of Shares
.The dollar amount you want to sell
.How and where to send the proceeds
.Mail the request to:
Goldman Sachs Funds
4900 Sears Tower - 60th Floor
Chicago, IL 60606-6372
-------------------------------------------------------------------
By Telephone: If you have elected the telephone redemption
privilege on your Account Application:
.1-800-621-2550
(8:00 a.m. to 4:00 p.m. New York time)
-------------------------------------------------------------------
</TABLE>
Certain institutions and intermediaries are authorized to accept redemption
requests on behalf of the Funds as described under "How Do I Purchase Shares
Through A Financial Institution?"
What Do I Need To Know About Telephone Redemption Requests?
The Trust, the Distributor and the Transfer Agent will not be liable for any
loss you may incur in the event that the Trust accepts unauthorized tele-
phone redemption requests that the Trust reasonably believes to be genuine.
In an effort to prevent unauthorized or fraudulent redemption and exchange
requests by telephone, Goldman Sachs employs reasonable procedures specified
by the Trust to confirm that such instructions are genuine. If reasonable
procedures are not employed, the Trust may be liable for any loss due to
unauthorized or fraudulent transactions. The following general policies are
currently in effect:
..All telephone requests are recorded.
..Any redemption request that requires money to go to an account or address
other than that designated on the Account Application must be in writing
and signed by an authorized person designated on the Account Application.
The written request may be confirmed by telephone with both the requesting
party and the designated bank account to verify instructions.
..The telephone redemption option may be modified or terminated at any time.
Note: It may be difficult to make telephone redemptions in times of drastic
economic or market conditions.
52
<PAGE>
SHAREHOLDER GUIDE
How Are Redemption Proceeds Paid?
By Wire: You may arrange for your redemption proceeds to be wired as federal
funds to the bank account designated in your Account Application. The fol-
lowing general policies govern wiring redemption proceeds:
..Redemption proceeds will normally be wired on the next business day in fed-
eral funds (for a total of one business day delay), but may be paid up to
three business days following receipt of a properly executed wire transfer
redemption request. If you are selling shares you recently paid for by
check, the Fund will pay you when your check has cleared, which may take up
to 15 days. If the Federal Reserve Bank is closed on the day that the
redemption proceeds would ordinarily be wired, wiring the redemption pro-
ceeds may be delayed one additional business day.
..To change the bank designated on your Account Application, you must send
written instructions signed by an authorized person designated on the
Account Application to the Transfer Agent.
..Neither the Trust, Goldman Sachs nor any other institution assumes any
responsibility for the performance of your bank or any intermediaries in
the transfer process. If a problem with such performance arises, you should
deal directly with your bank or any such intermediaries.
By Check: You may elect in writing to receive your redemption proceeds by
check. Redemption proceeds paid by check will normally be mailed to the
address of record within three business days of a properly executed redemp-
tion request. If you are selling shares you recently paid for by check, the
Fund will pay you when your check has cleared, which may take up to 15 days.
What Else Do I Need To Know About Redemptions?
The following generally applies to redemption requests:
..Institutional Shares of each Fund (other than the Global Income Fund) earn
dividends declared on the day the shares are redeemed.
..Additional documentation may be required when deemed appropriate by the
Transfer Agent. A redemption request will not be in proper form until such
additional documentation has been received.
..Institutions (including banks, trust companies, brokers and investment
advisers) are responsible for the timely transmittal of redemption requests
by their customers to the Transfer Agent. In order to facilitate the timely
transmittal of redemption requests, these institutions may set times by
which they must receive redemption requests. These institutions may also
require additional documentation from you.
53
<PAGE>
The Trust reserves the right to:
..Redeem your shares if your account balance falls below $50 as a result of
earlier redemptions. The Funds will not redeem your shares on this basis if
the value of your account falls below the minimum account balance solely as
a result of market conditions. The Fund will give you 60 days' prior writ-
ten notice to allow you to purchase sufficient additional shares of the
Fund in order to avoid such redemption.
..Redeem your shares in other circumstances determined by the Board of Trust-
ees to be in the best interest of the Trust.
..Pay redemptions by a distribution in-kind of securities (instead of cash).
If you receive redemption proceeds in-kind, you should expect to incur
transaction costs upon the disposition of those securities.
Can I Exchange My Investment From One Fund To Another?
You may exchange Institutional Shares of a Fund at NAV for Institutional
Shares of any other Goldman Sachs Fund. The exchange privilege may be mate-
rially modified or withdrawn at any time upon 60 days' written notice to
you.
<TABLE>
<CAPTION>
Instructions For
Exchanging
Shares:
-----------------------------------------------------------------
<S> <C>
By Writing: .Write a letter of instruction that includes:
.Your name(s) and signature(s)
.Your account number
.The Fund names and Class of Shares
.The dollar amount to be exchanged
.Mail the request to:
Goldman Sachs Funds
4900 Sears Tower--60th Floor
Chicago, IL 60606-6372
-----------------------------------------------------------------
By Telephone: If you have elected the telephone exchange
privilege on your Account Application:
.1-800-621-2550
(8:00 a.m. to 4:00 p.m. New York time)
-----------------------------------------------------------------
</TABLE>
You should keep in mind the following factors when making or considering an
exchange:
..You should obtain and carefully read the prospectus of the Fund you are
acquiring before making an exchange.
..All exchanges which represent an initial investment in a Fund must satisfy
the minimum initial investment requirements of that Fund, except that this
requirement may be waived at the discretion of the Trust.
..Telephone exchanges normally will be made only to an identically registered
account.
..Shares may be exchanged among accounts with different names, addresses and
social security or other taxpayer identification numbers only if the
exchange
54
<PAGE>
SHAREHOLDER GUIDE
instructions are in writing and are signed by an authorized person desig-
nated on the Account Application.
..Exchanges are available only in states where exchanges may be legally made.
..It may be difficult to make telephone exchanges in times of drastic eco-
nomic or market conditions.
..Goldman Sachs may use reasonable procedures described under "What Do I Need
To Know About Telephone Redemption Requests?" in an effort to prevent unau-
thorized or fraudulent telephone exchange requests.
For federal income tax purposes, an exchange is treated as a redemption of
the shares surrendered in the exchange, on which you may be subject to tax,
followed by a purchase of shares received in the exchange. You should con-
sult your tax adviser concerning the tax consequences of an exchange.
What Types of Reports Will I Be Sent Regarding Investments in Institutional
Shares?
You will receive an annual report containing audited financial statements
and a semi-annual report. To eliminate unnecessary duplication, only one
copy of such reports will be sent to shareholders with the same mailing
address. If you would like a duplicate copy to be mailed to you, please con-
tact Goldman Sachs Funds at 1-800-621-2550. You will also be provided with a
printed confirmation for each transaction in your account and a monthly
account statement. The Funds do not generally provide sub-accounting servic-
es.
55
<PAGE>
Taxation
TAXABILITY OF DISTRIBUTIONS
As with any investment, you should consider how your investment in the Funds
will be taxed. The tax information below is provided as general information.
More tax information is available in the Additional Statement. You should
consult your tax adviser about the federal, state, local or foreign tax con-
sequences of your investment in the Funds.
Unless your investment is an IRA or other tax-advantaged account, you should
consider the possible tax consequences of Fund distributions and the sale of
your Fund shares.
Taxes on Distributions: Except for exempt-interest dividends paid by the
Short Duration Tax-Free, Municipal Income and High Yield Municipal Funds,
distributions of investment income are taxable as ordinary income for fed-
eral tax purposes, and may also be subject to state or local taxes. This is
true whether you reinvest your distributions in additional Fund shares or
receive them in cash. Distributions from the Short Duration Tax-Free, Munic-
ipal Income and High Yield Municipal Funds that are designated as "exempt
interest dividends" are generally not subject to federal income tax (but may
be subject to state or local taxes). Distributions of short-term capital
gains are taxable to you as ordinary income. Any long-term capital gain dis-
tributions are taxable as long-term capital gains, no matter how long you
have owned your Fund shares.
Although distributions are generally treated as taxable to you in the year
they are paid, distributions declared in October, November or December but
paid in January are taxable as if they were paid in December. The Funds will
inform shareholders of the source and tax status of all distributions
promptly after the close of each calendar year.
The Core Fixed Income, Global Income and High Yield Funds may be subject to
foreign withholding or other foreign taxes on income or gain from certain
foreign securities. In general, the Funds may deduct these taxes in comput-
ing their taxable income. Shareholders of the Global Income Fund may be
entitled to claim a credit or a deduction with respect to foreign taxes if
the Fund elects to passthrough these taxes to you. Your January statement
will provide the relevant foreign tax information to you.
The Short Duration Tax-Free, Municipal Income and High Yield Municipal Funds
expect to distribute "exempt-interest dividends," attributable to tax-exempt
inter -
56
<PAGE>
TAXATION
est earned by those Funds. However, investments in tax-exempt bonds can also
result in the recognition of income or gain by a Fund, and thereby cause a
portion of the Fund's distributions to shareholders to be taxable. Thus, if
the value of a bond appreciates while the Fund owns it (aside from apprecia-
tion attributable to original issue discount on the bond), and the Fund then
sells the bond at a gain, that gain will generally not be exempt from tax--
whether or not the interest income on the bond is exempt. Gain recognized by
a Fund on sales of appreciated bonds will generally be short-term or long-
term capital gain depending on whether the Fund has held the bonds for more
than one year, but "market discount" bonds can cause the Fund to recognize
ordinary income. "Market discount" is a discount at which a bond is pur-
chased that is attributable to a decline in the value of a bond after its
original issuance. The market discount is then taken into account ratably
over the bond's remaining term to maturity, and the portion that accrues
during the Fund's holding period for the bond is generally treated as tax-
able ordinary income to the extent of any realized gain on the bond upon
disposition or maturity. Distributions attributable to ordinary income and
short-term capital gain recognized by the Short Duration Tax-Free, Municipal
Income and High Yield Municipal Funds will be taxable to you as ordinary
income. Distributions attributable to the excess of Fund net long-term capi-
tal gains over net short-term capital losses, and designated by the Fund as
"capital gain dividends," will be taxable to you as long-term capital gain.
You should note that a portion of the exempt-interest dividends paid by the
Short Duration Tax-Free, Municipal Income, and High Yield Municipal Funds
may be a
preference item when determining your federal alternative minimum tax lia-
bility. Exempt-interest dividends are also taken into account in determining
the taxable portion of social security or railroad retirement benefits. Any
interest on indebtedness incurred by you to purchase or carry shares in the
Short Duration Tax-Free, Municipal Income, and High Yield Municipal Funds
generally will not be deductible for federal income tax purposes.
TAXABILITY OF SALES AND EXCHANGES
Your sale of Fund shares is a taxable transaction for federal income tax
purposes, and may also be subject to state and local taxes. For tax purpos-
es, the exchange of your Fund shares for shares of a different Goldman Sachs
Fund is the same as a sale. When you sell your shares, you will generally
recognize a capital gain or loss in an amount equal to the difference
between your adjusted tax basis in the shares and the amount received. Gen-
erally, this gain or loss is long-term or short-term depending on whether
your holding period exceeds twelve months, except that any loss realized on
shares held for six months or less will be treated as a long-term capital
loss to the extent of any capital gain dividends that were
57
<PAGE>
received on the shares. In addition, any loss realized on shares held for
six months or less will be disallowed to the extent of any exempt-interest
dividends that were received on the shares.
OTHER INFORMATION
When you open your account, you should provide your social security or tax
identification number on your Account Application. By law, each Fund must
withhold 31% of your taxable distributions and any redemption proceeds if
you do not provide your correct taxpayer identification number, or certify
that it is correct, or if the IRS instructs the Fund to do so. Non-U.S.
investors may be subject to U.S. withholding and estate tax.
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Appendix A
Additional Information on Portfolio Risks, Securities and Techniques
A. General Portfolio Risks
The Funds will be subject to the risks associated with fixed-income securi-
ties. These risks include interest rate risk, credit risk and call/extension
risk. In general, interest rate risk involves the risk that when interest
rates decline, the market value of fixed-income securities tends to increase
(although many mortgage related securities will have less potential than
other debt securities for capital appreciation during periods of declining
rates). Conversely, when interest rates increase, the market value of fixed-
income securities tends to decline. Credit risk involves the risk that the
issuer could default on its obligations, and a Fund will not recover its
investment. Call risk and extension risk are normally present in adjustable
rate mortgage loans ("ARMs"), Mortgage-Backed Securities and asset-backed
securities. For example, homeowners have the option to prepay their mort-
gages. Therefore, the duration of a security backed by home mortgages can
either shorten (call risk) or lengthen (extension risk). In general, if
interest rates on new mortgage loans fall sufficiently below the interest
rates on existing outstanding mortgage loans, the rate of prepayment would
be expected to increase. Conversely, if mortgage loan interest rates rise
above the interest rates on existing outstanding mortgage loans, the rate of
prepayment would be expected to decrease. In either case, a change in the
prepayment rate can result in losses to investors.
The Investment Adviser will not consider the portfolio turnover rate a lim-
iting factor in making investment decisions for a Fund. A high rate of port-
folio turnover (100% or more) involves correspondingly greater expenses
which must be borne by a Fund and its shareholders. The portfolio turnover
rate is calculated by dividing the lesser of the dollar amount of sales or
purchases of portfolio securities by the average monthly value of a Fund's
portfolio securities, excluding securities having a maturity at the date of
purchase of one year or less. See "Financial Highlights" in Appendix B for a
statement of the Funds' historical portfolio turnover rates.
The following sections provide further information on certain types of secu-
rities and investment techniques that may be used by the Funds, including
their associated risks. Additional information is provided in the Additional
Statement, which is available upon request. Among other things, the Addi-
tional Statement describes certain fundamental investment restrictions that
cannot be changed without shareholder approval. You should note, however,
that all investment objectives and
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policies not specifically designated as fundamental are non-fundamental and
may be changed without shareholder approval. If there is a change in a
Fund's investment objective, you should consider whether that Fund remains
an appropriate investment in light of your then current financial positions
and needs.
B. Other Portfolio Risks
Credit Risks. Debt securities purchased by the Funds may include securities
(including zero coupon bonds) issued by the U.S. government (and its agen-
cies, instrumentalities and sponsored enterprises), foreign governments,
domestic and foreign corporations, banks and other issuers. Some of these
fixed-income securities are described in the next section below. Further
information is provided in the Additional Statement.
Debt securities rated BBB or higher by Standard & Poor's or Baa or higher by
Moody's are considered "investment grade." Securities rated BBB or Baa are
considered medium-grade obligations with speculative characteristics, and
adverse economic conditions or changing circumstances may weaken their
issuers' capacity to pay interest and repay principal. A security will be
deemed to have met a rating requirement if it receives the minimum required
rating from at least one such rating organization even though it has been
rated below the minimum rating by one or more other rating organizations, or
if unrated by such rating organizations, determined by the Investment
Adviser to be of comparable credit quality.
Certain Funds may invest in fixed-income securities rated BB or Ba or below
(or comparable unrated securities) which are commonly referred to as "junk
bonds." Junk bonds are considered predominantly speculative and may be ques-
tionable as to principal and interest payments.
In some cases, junk bonds may be highly speculative, have poor prospects for
reaching investment grade standing and be in default. As a result, invest-
ment in such bonds will present greater speculative risks than those associ-
ated with investment in investment grade bonds. Also, to the extent that the
rating assigned to a security in a Fund's portfolio is downgraded by a rat-
ing organization, the market price and liquidity of such security may be
adversely affected.
Risks of Derivative Investments. A Fund's transactions in options, futures,
options on futures, swaps, interest rate caps, floors and collars, struc-
tured securities, inverse floating-rate securities, stripped mortgage-backed
securities and currency transactions involve additional risk of loss. Loss
can result from a lack of correlation between changes in the value of deriv-
ative instruments and the portfolio assets (if any) being hedged, the poten-
tial illiquidity of the markets for derivative instruments, or the risks
arising from margin requirements and related lever -
60
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APPENDIX A
age factors associated with such transactions. The use of these management
techniques also involves the risk of loss if the Investment Adviser is
incorrect in its expectation of fluctuations in securities prices, interest
rates or currency prices. Each Fund may also invest in derivative invest-
ments for non-hedging purposes (that is, to seek to increase total return),
which is considered a speculative practice and presents even greater risk of
loss.
Derivative Mortgage-Backed Securities (such as principal-only ("POs"),
interest-only ("IOs") or inverse floating rate securities) are particularly
exposed to call and extension risks. Small changes in mortgage prepayments
can significantly impact the cash flow and the market value of these securi-
ties. In general, the risk of faster than anticipated prepayments adversely
affects IOs, super floaters and premium priced Mortgage-Backed Securities.
The risk of slower than anticipated prepayments generally adversely affects
POs, floating-rate securities subject to interest rate caps, support
tranches and discount priced Mortgage-Backed Securities. In addition, par-
ticular derivative securities may be leveraged such that their exposure
(i.e., price sensitivity) to interest rate and/or prepayment risk is
magnified.
Some floating-rate derivative debt securities can present more complex types
of derivative and interest rate risks. For example, range floaters are sub-
ject to the risk that the coupon will be reduced below market rates if a
designated interest rate floats outside of a specified interest rate band or
collar. Dual index or yield curve floaters are subject to lower prices in
the event of an unfavorable change in the spread between two designated
interest rates.
Risks of Foreign Investments. Certain Funds may invest in foreign invest-
ments. Foreign investments involve special risks that are not typically
associated with U.S. dollar denominated or quoted securities of U.S.
issuers. Foreign investments may be affected by changes in currency rates,
changes in foreign or U.S. laws or restrictions applicable to such invest-
ments and changes in exchange control regulations (e.g., currency blockage).
A decline in the exchange rate of the currency (i.e., weakening of the cur-
rency against the U.S. dollar) in which a portfolio security is quoted or
denominated relative to the U.S. dollar would reduce the value of the port-
folio security. In addition, if the currency in which a Fund receives divi-
dends, interest or other payments declines in value against the U.S. dollar
before such income is distributed as dividends to shareholders or converted
to U.S. dollars, the Fund may have to sell portfolio securities to obtain
sufficient cash to pay such dividends.
The introduction of a single currency, the euro, on January 1, 1999 for par-
ticipating nations in the European Economic and Monetary Union presents
unique uncertainties, including the legal treatment of certain outstanding
financial contracts
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after January 1, 1999 that refer to existing currencies rather than the
euro; the establishment and maintenance of exchange rates for currencies
being converted into the euro; the fluctuation of the euro relative to non-
euro currencies during the transition period from January 1, 1999 to Decem-
ber 31, 2001 and beyond; whether the interest rate, tax and labor regimes of
European countries participating in the euro will converge over time; and
whether the conversion of the currencies of other countries that now are or
may in the future become members of the European Union ("EU"), may have an
impact on the euro. These or other factors, including political and economic
risks, could cause market disruptions, and could adversely affect the value
of securities held by the Funds. Because of the number of countries using
this single currency, a significant portion of the assets held by the Funds
may be denominated in the euro.
Brokerage commissions, custodial services and other costs relating to
investment in international securities markets generally are more expensive
than in the United States. In addition, clearance and settlement procedures
may be different in foreign countries and, in certain markets, such proce-
dures have been unable to keep pace with the volume of securities transac-
tions, thus making it difficult to conduct such transactions.
Foreign issuers are not generally subject to uniform accounting, auditing
and financial reporting standards comparable to those applicable to U.S.
issuers. There may be less publicly available information about a foreign
issuer than a U.S. issuer. In addition, there is generally less government
regulation of foreign markets, companies and securities dealers than in the
United States. Foreign securities markets may have substantially less volume
than U.S. securities markets and securities of many foreign issuers are less
liquid and more volatile than securities of comparable domestic issuers.
Furthermore, with respect to certain foreign countries, there is a possibil-
ity of nationalization, expropriation or confiscatory taxation, imposition
of withholding or other taxes on dividend or interest payments (or, in some
cases, capital gains), limitations on the removal of funds or other assets
of the Funds, and political or social instability or diplomatic developments
which could affect investments in those countries.
Concentration of a Fund's assets in one or a few countries and currencies
will subject a Fund to greater risks than if a Fund's assets were not geo-
graphically concentrated.
Investment in sovereign debt obligations by certain Funds involves risks not
present in debt obligations of corporate issuers. The issuer of the debt or
the governmental authorities that control the repayment of the debt may be
unable or unwilling to repay principal or interest when due in accordance
with the terms of such debt, and a Fund may have limited recourse to compel
payment in the event of a
62
<PAGE>
APPENDIX A
default. Periods of economic uncertainty may result in the volatility of
market prices of sovereign debt, and in turn a Fund's NAV, to a greater
extent than the volatility inherent in debt obligations of U.S. issuers.
A sovereign debtor's willingness or ability to repay principal and pay
interest in a timely manner may be affected by, among other factors, its
cash flow situation, the extent of its foreign currency reserves, the avail-
ability of sufficient foreign exchange on the date a payment is due, the
relative size of the debt service burden to the economy as a whole, the sov-
ereign debtor's policy toward international lenders, and the political
constraints to which a sovereign debtor may be subject.
Risks of Emerging Countries. Certain Funds may invest in securities of
issuers located in emerging countries. The risks of foreign investment are
heightened when the issuer is located in an emerging country. Emerging coun-
tries are generally located in the Asia-Pacific region, Eastern Europe,
Latin and South America and Africa. A Fund's purchase and sale of portfolio
securities in certain emerging countries may be constrained by limitations
as to daily changes in the prices of listed securities, periodic trading or
settlement volume and/or limitations on aggregate holdings of foreign
investors. Such limitations may be computed based on the aggregate trading
volume by or holdings of a Fund, the Investment Adviser, its affiliates and
their respective clients and other service providers. A Fund may not be able
to sell securities in circumstances where price, trading or settlement vol-
ume limitations have been reached.
Foreign investment in the securities markets of certain emerging countries
is restricted or controlled to varying degrees which may limit investment in
such countries or increase the administrative costs of such investments. For
example, certain Asian countries require governmental approval prior to
investments by foreign persons or limit investment by foreign persons to
only a specified percentage of an issuer's outstanding securities or a spe-
cific class of securities which may have less advantageous terms (including
price) than securities of the issuer available for purchase by nationals. In
addition, certain countries may restrict or prohibit investment opportuni-
ties in issuers or industries deemed important to national interests. Such
restrictions may affect the market price, liquidity and rights of securities
that may be purchased by a Fund. The repatriation of both investment income
and capital from certain emerging countries is subject to restrictions such
as the need for governmental consents. Due to restrictions on direct invest-
ment in equity securities in certain Asian countries, it is anticipated that
a Fund may invest in such countries through other investment funds in such
countries.
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<PAGE>
Many emerging countries have experienced currency devaluations and substan-
tial (and, in some cases, extremely high) rates of inflation, which have had
a negative effect on the economies and securities markets of those emerging
countries. Economies in emerging countries generally are dependent heavily
upon commodity prices and international trade and, accordingly, have been
and may continue to be affected adversely by the economies of their trading
partners, trade barriers, exchange controls, managed adjustments in relative
currency values and other protectionist measures imposed or negotiated by
the countries with which they trade.
Many emerging countries are subject to a substantial degree of economic,
political and social instability. Governments of some emerging countries are
authoritarian in nature or have been installed or removed as a result of
military coups, while governments in other emerging countries have periodi-
cally used force to suppress civil dissent. Disparities of wealth, the pace
and success of democratization, and ethnic, religious and racial disaffec-
tion, among other factors, have also led to social unrest, violence and/or
labor unrest in some emerging countries. Unanticipated political or social
developments may result in sudden and significant investment losses. Invest-
ing in emerging countries involves greater risk of loss due to expropria-
tion, nationalization, confiscation of assets and property or the imposition
of restrictions on foreign investments and on repatriation of capital
invested.
A Fund's investment in emerging countries may also be subject to withholding
or other taxes, which may be significant and may reduce the return from an
investment in such country to the Fund.
Settlement procedures in emerging countries are frequently less developed
and reliable than those in the United States and often may involve a Fund's
delivery of securities before receipt of payment for their sale. In addi-
tion, significant delays are common in certain markets in registering the
transfer of securities. Settlement or registration problems may make it more
difficult for a Fund to value its portfolio securities and could cause the
Fund to miss attractive investment opportunities, to have a portion of its
assets uninvested or to incur losses due to the failure of a counterparty to
pay for securities the Fund has delivered or the Fund's inability to com-
plete its contractual obligations. The creditworthiness of the local securi-
ties firms used by a Fund in emerging countries may not be as sound as the
creditworthiness of firms used in more developed countries. As a result, the
Fund may be subject to a greater risk of loss if a securities firm defaults
in the performance of its responsibilities.
The small size and inexperience of the securities markets in certain emerg-
ing countries and the limited volume of trading in securities in those coun-
tries may make a Fund's investments in such countries less liquid and more
volatile than invest-
64
<PAGE>
APPENDIX A
ments in countries with more developed securities markets (such as the
United States, Japan and most Western European countries). A Fund's invest-
ments in emerging countries are subject to the risk that the liquidity of a
particular investment, or investments generally, in such countries will
shrink or disappear suddenly and without warning as a result of adverse eco-
nomic, market or political conditions or adverse investor perceptions,
whether or not accurate. Because of the lack of sufficient market liquidity,
a Fund may incur losses because it will be required to effect sales at a
disadvantageous time and then only at a substantial drop in price. Invest-
ments in emerging countries may be more difficult to price precisely because
of the characteristics discussed above and lower trading volumes.
A Fund's use of foreign currency management techniques in emerging countries
may be limited. Due to the limited market for these instruments in emerging
countries, the Investment Adviser does not currently anticipate that a sig-
nificant portion of the Funds' currency exposure in emerging countries, if
any, will be covered by such instruments.
Risks of Illiquid Securities. Each Fund may invest up to 15% of its net
assets in illiquid securities which cannot be disposed of in seven days in
the ordinary course of business at fair value. Illiquid securities include:
..Both domestic and foreign securities that are not readily marketable
..Certain municipal leases and participation interests
..Certain stripped Mortgage-Backed Securities
..Repurchase agreements and time deposits with a notice or demand period of
more than seven days
..Certain over-the-counter options
..Certain structured securities and all swap transactions
..Certain restricted securities, unless it is determined, based upon a review
of the trading markets for a specific restricted security, that such
restricted security is eligible for resale pursuant to Rule 144A under the
Securities Act of 1933 ("144A Securities") and, therefore, is liquid.
Investing in 144A Securities may decrease the liquidity of a Fund's portfo-
lio to the extent that qualified institutional buyers become for a time
uninterested in purchasing these restricted securities. The purchase price
and subsequent valuation of restricted and illiquid securities normally
reflect a discount, which may be significant, from the market price of com-
parable securities for which a liquid market exists.
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Temporary Investment Risks. Each Fund may, for temporary defensive purposes,
invest a certain percentage of its total assets in:
..U.S. Government Securities
..Repurchase agreements collateralized by U.S. Government Securities
Certain Funds may invest more than 20% of their respective net assets in
taxable investments and in investment grade securities for temporary defen-
sive purposes.
When a Fund's assets are invested in such instruments, the Fund may not be
achieving its investive objective.
C. Portfolio Securities and Techniques
This section provides further information on certain types of securities and
investment techniques that may be used by the Funds, including their associ-
ated risks. Further information is provided in the Additional Statement,
which is available upon request.
U.S. Government Securities and Related Custodial Receipts. Each Fund may
invest in U.S. Government Securities. U.S. Government Securities include
U.S. Treasury obligations and obligations issued or guaranteed by U.S. gov-
ernment agencies, instrumentalities or sponsored enterprises. U.S. Govern-
ment Securities may be supported by (a) the full faith and credit of the
U.S. Treasury (such as the Government National Mortgage Association ("Ginnie
Mae")); (b) the right of the issuer to borrow from the U.S. Treasury (such
as securities of the Student Loan Marketing Association); (c) the discre-
tionary authority of the U.S. government to purchase certain obligations of
the issuer (such as the Federal National Mortgage Association ("Fannie Mae")
and Federal Home Loan Mortgage Corporation ("Freddie Mac")); or (d) only the
credit of the issuer. U.S. Government Securities also include Treasury
receipts, zero coupon bonds and other stripped U.S. Government Securities,
where the interest and principal components of stripped U.S. Government
Securities are traded independently.
Interests in U.S. Government Securities may be purchased in the form of cus-
todial receipts that evidence ownership of future interest payments, princi-
pal payments or both on certain notes or bonds issued or guaranteed as to
principal and interest by the U.S. government, its agencies, instrumentali-
ties, political subdivisions or authorities. For certain securities law pur-
poses, custodial receipts are not considered obligations of the U.S. govern-
ment.
Mortgage-Backed Securities. Certain Funds may invest in Mortgage-Backed
Securities. Mortgage-Backed Securities represent direct or indirect partici-
pations in, or are collateralized by and payable from, mortgage loans
secured by real
66
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APPENDIX A
property. Mortgage-Backed Securities can be backed by either fixed rate
mortgage loans or adjustable rate mortgage loans, and may be issued by
either a governmental or non-governmental entity. Privately issued Mortgage-
Backed Securities are normally structured with one or more types of "credit
enhancement." However, these Mortgage-Backed Securities typically do not
have the same credit standing as U.S. government guaranteed Mortgage-Backed
Securities.
Mortgage-Backed Securities may include multiple class securities, including
collateralized mortgage obligations ("CMOs") and Real Estate Mortgage
Investment Conduit ("REMIC") pass-through or participation certificates.
CMOs provide an investor with a specified interest in the cash flow from a
pool of underlying mortgages or of other Mortgage-Backed Securities. CMOs
are issued in multiple classes. In many cases, payments of principal are
applied to the CMO classes in the order of their respective stated maturi-
ties, so that no principal payments will be made on a CMO class until all
other classes having an earlier stated maturity date are paid in full. A
REMIC is a CMO that qualifies for special tax treatment under the Code and
invests in certain mortgages principally secured by interests in real prop-
erty and other permitted investments.
Mortgaged-Backed Securities also include stripped Mortgage-Backed Securities
("SMBS"), which are derivative multiple class Mortgage-Backed Securities.
SMBS are usually structured with two different classes: one that receives
substantially all of the interest payments and the other that receives sub-
stantially all of the principal payments from a pool of mortgage loans. The
market value of SMBS consisting entirely of principal payments generally is
unusually volatile in response to changes in interest rates. The yields on
SMBS that receive all or most of the interest from mortgage loans are gener-
ally higher than prevailing market yields on other Mortgage-Backed Securi-
ties because their cash flow patterns are more volatile and there is a
greater risk that the initial investment will not be fully recouped.
Asset-Backed Securities. Each Fund may invest in asset-backed securities.
Asset-backed securities are securities whose principal and interest payments
are collateralized by pools of assets such as auto loans, credit card
receivables, leases, installment contracts and personal property. Asset-
backed securities are often subject to more rapid repayment than their
stated maturity date would indicate as a result of the pass-through of pre-
payments of principal on the underlying loans. During periods of declining
interest rates, prepayment of loans underlying asset-backed securities can
be expected to accelerate. Accordingly, a Fund's ability to maintain posi-
tions in such securities will be affected by reductions in the principal
amount of such securities resulting from prepayments, and its ability to
reinvest the returns of principal at comparable yields is subject to gener-
ally prevailing interest rates at that
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time. Asset-backed securities present credit risks that are not presented by
Mortgage-Backed Securities. This is because asset-backed securities gener-
ally do not have the benefit of a security interest in collateral that is
comparable to mortgage assets. There is the possibility that, in some cases,
recoveries on repossessed collateral may not be available to support pay-
ments on these securities. In the event of a default, a Fund may suffer a
loss if it cannot sell collateral quickly and receive the amount it is owed.
Municipal Securities. Certain Funds may invest in securities and instruments
issued by state and local government issuers. Municipal Securities in which
a Fund may invest consist of bonds, notes, commercial paper and other
instruments (including participation interests in such securities) issued by
or on behalf of the states, territories and possessions of the United States
(including the District of Columbia) and their political subdivisions, agen-
cies or instrumentalities, the interest on which, in the opinion of bond
counsel for the issuers or counsel selected by the Investment Adviser, is
exempt from regular federal income tax (i.e., excluded from gross income for
federal income tax purposes but not necessarily exempt from federal alterna-
tive minimum tax or from state or local taxes). Because of their tax-exempt
status, the yields and market values of Municipal Securities may be more
adversely impacted by changes in tax rates and policies than taxable fixed-
income securities.
Municipal Securities include both "general" and "revenue" bonds and may be
issued to obtain funds for various purposes. General obligations are secured
by the issuer's pledge of its full faith, credit and taxing power. Revenue
obligations are payable only from the revenues derived from a particular
facility or class of facilities.
Municipal Securities are often issued to obtain funds for various public
purposes, including the construction of a wide range of public facilities
such as bridges, highways, housing, hospitals, mass transportation, schools,
streets and water and sewer works. Municipal Securities include private
activity bonds, pre-refunded municipal securities and auction rate securi-
ties.
The obligations of the issuer to pay the principal of and interest on a
Municipal Security are subject to the provisions of bankruptcy, insolvency
and other laws affecting the rights and remedies of creditors, such as the
Federal Bankruptcy Act, and laws, if any, that may be enacted by Congress or
state legislatures extending the time for payment of principal or interest
or imposing other constraints upon the enforcement of such obligations.
There is also the possibility that, as a result of litigation or other con-
ditions, the power or ability of the issuer to pay when due the principal of
or interest on a Municipal Security may be materially affected.
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APPENDIX A
In addition, Municipal Securities include municipal leases, certificates of
participation and "moral obligation" bonds. A municipal lease is an obliga-
tion issued by a state or local government to acquire equipment or facili-
ties. Certificates of participation represent interests in municipal leases
or other instruments, such as installment purchase agreements. Moral obliga-
tion bonds are supported by a moral commitment but not a legal obligation of
a state or local government. Municipal leases, certificates of participation
and moral obligation bonds frequently involve special risks not normally
associated with general obligation or revenue bonds. In particular, these
instruments permit governmental issuers to acquire property and equipment
without meeting constitutional and statutory requirements for the issuance
of debt. If, however, the governmental issuer does not periodically appro-
priate money to enable it to meet its payment obligations under these
instruments, it cannot be legally compelled to do so. If a default occurs,
it is likely that a Fund would be unable to obtain another acceptable source
of payment. Some municipal leases, certificates of participation and moral
obligation bonds may be illiquid.
Municipal Securities may also be in the form of a tender option bond, which
is a Municipal Security (generally held pursuant to a custodial arrangement)
having a relatively long maturity and bearing interest at a fixed rate sub-
stantially higher than prevailing short-term, tax-exempt rates. The bond is
typically issued with the agreement of a third party, such as a bank, bro-
ker-dealer or other financial institution, which grants the security holders
the option, at periodic intervals, to tender their securities to the insti-
tution. After payment of a fee to the financial institution that provides
this option, the security holder effectively holds a demand obligation that
bears interest at the prevailing short-term, tax-exempt rate. An institution
may not be obligated to accept tendered bonds in the event of certain
defaults or a significant downgrading in the credit rating assigned to the
issuer of the bond. The tender option will be taken into account in deter-
mining the maturity of the tender option bonds and a Fund's average portfo-
lio maturity. There is risk that a Fund will not be considered the owner of
a tender option bond for federal income tax purposes, and thus will not be
entitled to treat such interest as exempt from federal income tax. Certain
tender option bonds may be illiquid.
Municipal Securities may be backed by letters of credit or other forms of
credit enhancement issued by domestic banks or foreign banks which have a
branch, agency or subsidiary in the United States or by other financial
institutions. The credit quality of these banks and financial institutions
could, therefore, cause a loss to a Fund that invests in Municipal Securi-
ties. Letters of credit and other obligations of foreign banks and financial
institutions may involve risks in addition to those of domestic obligations
because of less publicly available financial and other information, less
securities regulation, potential imposition of foreign withholding and other
taxes, war, expropriation or other adverse governmental
69
<PAGE>
actions. Foreign banks and their foreign branches are not regulated by U.S.
banking authorities, and are generally not bound by the accounting, auditing
and financial reporting standards applicable to U.S. banks.
Corporate Debt Obligations; Trust Preferred Securities; Convertible Securi-
ties. Certain Funds may invest in corporate debt obligations, trust pre-
ferred securities and convertible securities. Corporate debt obligations
include bonds, notes, debentures, commercial paper and other obligations of
corporations to pay interest and repay principal, and include securities
issued by banks and other financial institutions. A trust preferred security
is a long dated bond (for example, 30 years) with preferred features. The
preferred features are that payment of interest can be deferred for a speci-
fied period without initiating a default event. The securities are generally
senior in claim to standard preferred stock but junior to other bondholders.
Convertible securities are preferred stock or debt obligations that are con-
vertible into common stock. Convertible securities generally offer lower
interest or dividend yields than non-convertible securities of similar qual-
ity. Convertible securities in which a Fund invests are subject to the same
rating criteria as its other investments in fixed-income securities. Con-
vertible securities have both equity and fixed-income risk characteristics.
Like all fixed-income securities, the value of convertible securities is
susceptible to the risk of market losses attributable to changes in interest
rates. Generally, the market value of convertible securities tends to
decline as interest rates increase and, conversely, to increase as interest
rates decline. However, when the market price of the common stock underlying
a convertible security exceeds the conversion price of the convertible secu-
rity, the convertible security tends to reflect the market price of the
underlying common stock. As the market price of the underlying common stock
declines, the convertible security, like a fixed-income security, tends to
trade increasingly on a yield basis, and thus may not decline in price to
the same extent as the underlying common stock.
Foreign Currency Transactions. Certain Funds may, to the extent consistent
with their investment policies, purchase or sell foreign currencies on a
cash basis or through forward contracts. A forward contract involves an
obligation to purchase or sell a specific currency at a future date at a
price set at the time of the contract. Certain Funds may engage in foreign
currency transactions for hedging purposes and to seek to protect against
anticipated changes in future foreign currency exchange rates. In addition,
certain Funds also may enter into such transactions to seek to increase
total return, which is considered a speculative practice.
Some Funds may also engage in cross-hedging by using forward contracts in a
currency different from that in which the hedged security is denominated or
quoted if the Investment Adviser determines that there is a pattern of cor-
relation
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APPENDIX A
between the two currencies. A Fund may hold foreign currency received in
connection with investments in foreign securities when, in the judgment of
the Investment Adviser, it would be beneficial to convert such currency into
U.S. dollars at a later date (e.g., the Investment Adviser may anticipate
the foreign currency to appreciate against the U.S. dollar).
Currency exchange rates may fluctuate significantly over short periods of
time, causing, along with other factors, a Fund's NAV to fluctuate (when the
Fund's NAV fluctuates, the value of your shares may go up or down). Currency
exchange rates also can be affected unpredictably by the intervention of
U.S. or foreign governments or central banks, or the failure to intervene,
or by currency controls or political developments in the United States or
abroad.
The market in forward foreign currency exchange contracts, currency swaps
and other privately negotiated currency instruments offers less protection
against defaults by the other party to such instruments than is available
for currency instruments traded on an exchange. Such contracts are subject
to the risk that the counterparty to the contract will default on its obli-
gations. Since these contracts are not guaranteed by an exchange or clear-
inghouse, a default on a contract would deprive a Fund of unrealized prof-
its, transaction costs or the benefits of a currency hedge or could force
the Fund to cover its purchase or sale commitments, if any, at the current
market price.
Structured Securities and Inverse Floaters. Certain Funds may invest in
structured securities. Structured securities are securities whose value is
determined by reference to changes in the value of specific currencies,
interest rates, commodities, indices or other financial indicators (the
"Reference") or the relative change in two or more References. The interest
rate or the principal amount payable upon maturity or redemption may be
increased or decreased depending upon changes in the applicable Reference.
Structured securities may be positively or negatively indexed, so that
appreciation of the Reference may produce an increase or decrease in the
interest rate or value of the security at maturity. In addition, changes in
the interest rates or the value of the security at maturity may be a multi-
ple of changes in the value of the Reference. Consequently, structured secu-
rities may present a greater degree of market risk than other types of
fixed-income securities, and may be more volatile, less liquid and more dif-
ficult to price accurately than less complex securities.
Structured securities include, but are not limited to, inverse floating rate
debt securities ("inverse floaters"). The interest rate on inverse floaters
resets in the opposite direction from the market rate of interest to which
the inverse floater is indexed. An inverse floater may be considered to be
leveraged to the extent that its interest rate varies by a magnitude that
exceeds the magnitude of the change in
71
<PAGE>
the index rate of interest. The higher the degree of leverage of an inverse
floater, the greater the volatility of its market value.
Zero Coupon, Deferred Interest, Pay-In-Kind and Capital Appreciation Bonds.
Each Fund may invest in zero coupon, deferred interest, pay-in-kind and cap-
ital appreciation bonds are issued at a discount from their face value
because interest payments are typically postponed until maturity. Pay-in-
kind securities are securities that have interest payable by the delivery of
additional securities. The market prices of these securities generally are
more volatile than the market prices of interest-bearing securities and are
likely to respond to a greater degree to changes in interest rates than
interest-bearing securities having similar maturities and credit quality.
Mortgage Dollar Rolls. Certain Funds may enter into mortgage dollar rolls. A
mortgage dollar roll involves the sale by a Fund of securities for delivery
in the current month. The Fund simultaneously contracts with the same
counterparty to repurchase substantially similar (same type, coupon and
maturity) but not identical securities on a specified future date. During
the roll period, the Fund loses the right to receive principal and interest
paid on the securities sold. However, the Fund benefits to the extent of any
difference between (a) the price received for the securities sold and (b)
the lower forward price for the future purchase and/or fee income plus the
interest earned on the cash proceeds of the securities sold. Unless the ben-
efits of a mortgage dollar roll exceed the income, capital appreciation and
gain or loss due to mortgage prepayments that would have been realized on
the securities sold as part of the roll, the use of this technique will
diminish the Fund's performance.
Successful use of mortgage dollar rolls depends upon the Investment Advis-
er's ability to predict correctly interest rates and mortgage prepayments.
If the Investment Adviser is incorrect in its prediction, a Fund may experi-
ence a loss. For financial reporting and tax purposes, the Funds treat mort-
gage dollar rolls as two separate transactions: one involving the purchase
of a security and a separate transaction involving a sale. The Funds do not
currently intend to enter into mortgage dollar rolls that are accounted for
as a financing and do not treat them as borrowings.
Options on Securities, Securities Indices and Foreign Currencies. A put
option gives the purchaser of the option the right to sell, and the writer
(seller) of the option the obligation to buy, the underlying instrument dur-
ing the option period. A call option gives the purchaser of the option the
right to buy, and the writer (seller) of the option the obligation to sell,
the underlying instrument during the option period. Each Fund may write
(sell) covered call and put options and purchase put and call options on any
securities in which it may invest or on any securities index comprised of
securities in which it may invest. A Fund may also,
72
<PAGE>
APPENDIX A
to the extent that it invests in foreign securities, purchase and sell
(write) put and call options on foreign currencies.
The writing and purchase of options is a highly specialized activity which
involves special investment risks. Options may be used for either hedging or
cross-hedging purposes, or to seek to increase total return (which is con-
sidered a speculative activity). The successful use of options depends in
part on the ability of the Investment Adviser to manage future price fluctu-
ations and the degree of correlation between the options and securities (or
currency) markets. If the Investment Adviser is incorrect in its expectation
of changes in market prices or determination of the correlation between the
instruments or indices on which options are written and purchased and the
instruments in a Fund's investment portfolio, the Fund may incur losses that
it would not otherwise incur. The use of options can also increase a Fund's
transaction costs. Options written or purchased by the Funds may be traded
on either U.S. or foreign exchanges or over-the- counter. Foreign and over-
the-counter options will present greater possibility of loss because of
their greater illiquidity and credit risks.
Yield Curve Options. Each Fund may enter into options on the yield "spread"
or differential between two securities. Such transactions are referred to as
"yield curve" options. In contrast to other types of options, a yield curve
option is based on the difference between the yields of designated securi-
ties, rather than the prices of the individual securities, and is settled
through cash payments. Accordingly, a yield curve option is profitable to
the holder if this differential widens (in the case of a call) or narrows
(in the case of a put), regardless of whether the yields of the underlying
securities increase or decrease.
The trading of yield curve options is subject to all of the risks associated
with the trading of other types of options. In addition, such options pres-
ent a risk of loss even if the yield of one of the underlying securities
remains constant, or if the spread moves in a direction or to an extent
which was not anticipated.
Futures Contracts and Options on Futures Contracts. Futures contracts are
standardized, exchange-traded contracts that provide for the sale or pur-
chase of a specified financial instrument or currency at a future time at a
specified price. An option on a futures contract gives the purchaser the
right (and the writer of the option the obligation) to assume a position in
a futures contract at a specified exercise price within a specified period
of time. A futures contract may be based on various securities (such as U.S.
Government Securities), foreign currencies, securities indices and other
financial instruments and indices. The Funds may engage in futures transac-
tions on both U.S. and foreign exchanges.
Each Fund may purchase and sell futures contracts, and purchase and write
call and put options on futures contracts, in order to seek to increase
total return or to
73
<PAGE>
hedge against changes in interest rates, securities prices or, to the extent
a Fund invests in foreign securities, currency exchange rates, or to other-
wise manage their term structures, sector selection and durations in accor-
dance with their investment objectives and policies. Each Fund may also
enter into closing purchase and sale transactions with respect to such con-
tracts and options. A Fund will engage in futures and related options trans-
actions for bona fide hedging purposes as defined in regulations of the Com-
modity Futures Trading Commission or to seek to increase total return to the
extent permitted by such regulations. A Fund may not purchase or sell
futures contracts or purchase or sell related options to seek to increase
total return, except for closing purchase or sale transactions, if immedi-
ately thereafter the sum of the amount of initial margin deposits and premi-
ums paid on the Fund's outstanding positions in futures and related options
entered into for the purpose of seeking to increase total return would
exceed 5% of the market value of the Fund's net assets.
Futures contracts and related options present the following risks:
..While a Fund may benefit from the use of futures and options on futures,
unanticipated changes in interest rates, securities prices or currency
exchange rates may result in poorer overall performance than if the Fund
had not entered into any futures contracts or options transactions.
..Because perfect correlation between a futures position and portfolio posi-
tion that is intended to be protected is impossible to achieve, the desired
protection may not be obtained and a Fund may be exposed to additional risk
of loss.
..The loss incurred by a Fund in entering into futures contracts and in writ-
ing call options on futures is potentially unlimited and may exceed the
amount of the premium received.
..Futures markets are highly volatile and the use of futures may increase the
volatility of a Fund's NAV.
..As a result of the low margin deposits normally required in futures trad-
ing, a relatively small price movement in a futures contract may result in
substantial losses to a Fund.
..Futures contracts and options on futures may be illiquid, and exchanges may
limit fluctuations in futures contract prices during a single day.
..Foreign exchanges may not provide the same protection as U.S. exchanges.
When-Issued Securities and Forward Commitments. Each Fund may purchase when-
issued securities and enter into forward commitments. When-issued securities
are securities that have been authorized, but not yet issued. When-issued
securities are purchased in order to secure what is considered to be an
advantageous price and yield to the Fund at the time of entering into the
transaction. A forward commitment involves entering into a contract to pur-
chase or sell securities for a fixed price at a future date beyond the cus-
tomary settlement period.
74
<PAGE>
APPENDIX A
The purchase of securities on a when-issued or forward commitment basis
involves a risk of loss if the value of the security to be purchased
declines before the settlement date. Conversely, the sale of securities on a
forward commitment basis involves the risk that the value of the securities
sold may increase before the settlement date. Although a Fund will generally
purchase securities on a when-issued or forward commitment basis with the
intention of acquiring the securities for its portfolio, a Fund may dispose
of when-issued securities or forward commitments prior to settlement if the
Investment Adviser deems it appropriate.
Lending of Portfolio Securities. Each Fund may engage in securities lending.
Securities lending involves the lending of securities owned by a Fund to
financial institutions such as certain broker-dealers. The borrowers are
required to secure their loans continuously with cash, cash equivalents,
U.S. Government Securities or letters of credit in an amount at least equal
to the market value of the securities loaned. Cash collateral may be
invested in cash equivalents. To the extent that cash collateral is invested
in other investment securities, such collateral will be subject to market
depreciation or appreciation, and a Fund will be responsible for any loss
that might result from its investment of the borrowers' collateral. If the
Investment Adviser determines to make securities loans, the value of the
securities loaned may not exceed 33 1/3% of the value of the total assets of
a Fund (including the loan collateral).
A Fund may lend its securities to increase its income. A Fund may, however,
experience delay in the recovery of its securities, or capital loss if the
institution with which it has engaged in a portfolio loan transaction
breaches its agreement with the Fund.
Repurchase Agreements. Repurchase agreements involve the purchase of securi-
ties subject to the seller's agreement to repurchase them at a mutually
agreed upon date and price. Each Fund may enter into repurchase agreements
with dealers in U.S. Government Securities and member banks of the Federal
Reserve System which furnish collateral at least equal in value or market
price to the amount of their repurchase obligation. Some Funds may also
enter into repurchase agreements involving certain foreign government secu-
rities.
If the other party or "seller" defaults, a Fund might suffer a loss to the
extent that the proceeds from the sale of the underlying securities and
other collateral held by the Fund are less than the repurchase price and the
Fund's costs associated with delay and enforcement of the repurchase agree-
ment. In addition, in the event of bankruptcy of the seller, a Fund could
suffer additional losses if a court determines that the Fund's interest in
the collateral is not enforceable.
75
<PAGE>
In evaluating whether to enter into a repurchase agreement, the Investment
Adviser will carefully consider the creditworthiness of the seller. Certain
Funds, together with other registered investment companies having advisory
agreements with the Investment Adviser or any of its affiliates, may trans-
fer uninvested cash balances into a single joint account, the daily aggre-
gate balance of which will be invested in one or more repurchase agreements.
Borrowings and Reverse Repurchase Agreements. Each Fund can borrow money
from banks and enter into reverse repurchase agreements with banks and other
financial institutions in amounts not exceeding one-third of its total
assets. A Fund may not make additional investments if borrowings exceed 5%
of its total assets. Reverse repurchase agreements involve the sale of secu-
rities held by a Fund subject to the Fund's agreement to repurchase them at
a mutually agreed upon date and price (including interest). These transac-
tions may be entered into as a temporary measure for emergency purposes or
to meet redemption requests. Reverse repurchase agreements may also be
entered into when the Investment Adviser expects that the interest income to
be earned from the investment of the transaction proceeds will be greater
than the related interest expense. Borrowings and reverse repurchase agree-
ments involve leveraging. If the securities held by a Fund decline in value
while these transactions are outstanding, the NAV of the Fund's outstanding
shares will decline in value by proportionately more than the decline in
value of the securities. In addition, reverse repurchase agreements involve
the risk that the interest income earned by a Fund (from the investment of
the proceeds) will be less than the interest expense of the transaction,
that the market value of the securities sold by a Fund will decline below
the price the Fund is obligated to pay to repurchase the securities, and
that the securities may not be returned to the Fund.
Interest Rate Swaps, Mortgage Swaps, Credit Swaps, Currency Swaps and Inter-
est Rate Caps, Floors and Collars. Interest rate swaps involve the exchange
by a Fund with another party of their respective commitments to pay or
receive interest, such as an exchange of fixed-rate payments for floating
rate payments. Mortgage swaps are similar to interest rate swaps in that
they represent commitments to pay and receive interest. The notional princi-
pal amount, however, is tied to a reference pool or pools of mortgages.
Credit swaps involve the receipt of floating or fixed rate payments in
exchange for assuming potential credit losses of an underlying security.
Credit swaps give one party to a transaction the right to dispose of or
acquire an asset (or group of assets), or the right to receive or make a
payment from the other party, upon the occurrence of specified credit
events. Currency swaps involve the exchange of the parties' respective
rights to make or receive payments in specified currencies. The purchase of
an interest rate cap entitles the purchaser, to the extent that a specified
index exceeds a predetermined interest rate,
76
<PAGE>
APPENDIX A
to receive payment of interest on a notional principal amount from the party
selling such interest rate cap. The purchase of an interest rate floor enti-
tles the purchaser, to the extent that a specified index falls below a pre-
determined interest rate, to receive payments of interest on a notional
principal amount from the party selling the interest rate floor. An interest
rate collar is the combination of a cap and a floor that preserves a certain
return within a predetermined range of interest rates.
Each Fund may enter into swap transactions for hedging purposes or to seek
to increase total return. The use of interest rate, mortgage, credit and
currency swaps, as well as interest rate caps, floors and collars, is a
highly specialized activity which involves investment techniques and risks
different from those associated with ordinary portfolio securities transac-
tions. If the Investment Adviser is incorrect in its forecasts of market
values, interest rates and currency exchange rates, the investment perfor-
mance of a Fund would be less favorable than it would have been if these
investment techniques were not used.
Other Investment Companies. Each Fund may invest in securities of other
investment companies subject to statutory limitations prescribed by the Act.
These limitations include a prohibition on any Fund acquiring more than 3%
of the voting shares of any other investment company, and a prohibition on
investing more than 5% of a Fund's total assets in securities of any one
investment company or more than 10% of its total assets in securities of all
investment companies. A Fund will indirectly bear its proportionate share of
any management fees and other expenses paid by such other investment compa-
nies. Such other investment companies will have investment objectives, poli-
cies and restrictions substantially similar to those of the acquiring Fund
and will be subject to substantially the same risks.
Non-Investment Grade Fixed-Income Securities. Non-investment grade fixed-
income securities and unrated securities of comparable credit quality (com-
monly known as "junk bonds") are considered predominantly speculative by
traditional investment standards. In some cases, these obligations may be
highly speculative and have poor prospects for reaching investment grade
standing. Non-investment grade fixed-income securities are subject to the
increased risk of an issuer's inability to meet principal and interest obli-
gations. These securities, also referred to as high yield securities, may be
subject to greater price volatility due to such factors as specific corpo-
rate or municipal developments, interest rate sensitivity, negative percep-
tions of the junk bond markets generally and less secondary market
liquidity.
Non-investment grade fixed-income securities are often issued in connection
with a corporate reorganization or restructuring or as part of a merger,
acquisition, takeover or similar event. They are also issued by less estab-
lished companies seeking to expand. Such issuers are often highly leveraged
and generally less able than
77
<PAGE>
more established or less leveraged entities to make scheduled payments of
principal and interest in the event of adverse developments or business con-
ditions. Non-investment grade securities are also issued by state, city, or
local municipalities that may have difficulty in making all scheduled inter-
est and principal payments.
The market value of non-investment grade fixed-income securities tends to
reflect individual corporate or municipal developments to a greater extent
than that of higher rated securities which react primarily to fluctuations
in the general level of interest rates. As a result, a Fund's ability to
achieve its investment objectives may depend to a greater extent on the
Investment Adviser's judgment concerning the creditworthiness of issuers
than funds which invest in higher-rated securities. Issuers of non-invest-
ment grade fixed-income securities may not be able to make use of more tra-
ditional methods of financing and their ability to service debt obligations
may be affected more adversely than issuers of higher-rated securities by
economic downturns, specific corporate or financial developments or the
issuer's inability to meet specific projected business forecasts. Negative
publicity about the junk bond market and investor perceptions regarding
lower rated securities, whether or not based on fundamental analysis, may
depress the prices for such securities.
A holder's risk of loss from default is significantly greater for non-
investment grade fixed-income securities than is the case for holders of
other debt securities because such non-investment grade securities are gen-
erally unsecured and are often subordinated to the rights of other creditors
of the issuers of such securities. Investment by a Fund in defaulted securi-
ties poses additional risk of loss should nonpayment of principal and inter-
est continue in respect of such securities. Even if such securities are held
to maturity, recovery by a Fund of its initial investment and any antici-
pated income or appreciation is uncertain.
The secondary market for non-investment grade fixed-income securities is
concentrated in relatively few market makers and is dominated by institu-
tional investors, including mutual funds, insurance companies and other
financial institutions. Accordingly, the secondary market for such securi-
ties is not as liquid as, and is more volatile than, the secondary market
for higher-rated securities. In addition, market trading volume for high
yield fixed-income securities is generally lower and the secondary market
for such securities could shrink or disappear suddenly and without warning
as a result of adverse market or economic conditions, independent of any
specific adverse changes in the condition of a particular issuer. Because of
the lack of sufficient market liquidity, a Fund may incur losses because it
will be required to effect sales at a disadvantageous time and then only at
a substantial drop in price. These factors may have an adverse effect on the
market price and a Fund's ability to dispose of particular portfolio invest-
ments. A
78
<PAGE>
APPENDIX A
less liquid secondary market also may make it more difficult for a Fund to
obtain precise valuations of the high yield securities in its portfolio.
Credit ratings issued by credit rating agencies are designed to evaluate the
safety of principal and interest payments of rated securities. They do not,
however, evaluate the market value risk of non-investment grade securities
and, therefore, may not fully reflect the true risks of an investment. In
addition, credit rating agencies may or may not make timely changes in a
rating to reflect changes in the economy or in the conditions of the issuer
that affect the market value of the security. Consequently, credit ratings
are used only as a preliminary indicator of investment quality.
Loan Participations. Certain Funds may invest in loan participations. A loan
participation is an interest in a loan to a U.S. or foreign company or other
borrower which is administered and sold by a financial intermediary. A Fund
may only invest in loans to issuers in whose obligations it may otherwise
invest. Loan participation interests may take the form of a direct or co-
lending relationship with the corporate borrower, an assignment of an inter-
est in the loan by a co-lender or another participant, or a participation in
the seller's share of the loan. When a Fund acts as co-lender in connection
with a participation interest or when it acquires certain participation
interests, the Fund will have direct recourse against the borrower if the
borrower fails to pay scheduled principal and interest. In cases where the
Fund lacks direct recourse, it will look to an agent for the lenders (the
"agent lender") to enforce appropriate credit remedies against the borrower.
In these cases, the Fund may be subject to delays, expenses and risks that
are greater than those that would have been involved if the Fund had pur-
chased a direct obligation (such as commercial paper) of such borrower.
Moreover, under the terms of the loan participation, the Fund may be
regarded as a creditor of the agent lender (rather than of the underlying
corporate borrower), so that the Fund may also be subject to the risk that
the agent lender may become insolvent.
Preferred Stock, Warrants and Rights. Certain Funds may invest in preferred
stock, warrants and rights. Preferred stocks are securities that represent
an ownership interest providing the holder with claims on the issuer's earn-
ings and assets before common stock owners but after bond owners. Unlike
debt securities, the obligations of an issuer of preferred stock, including
dividend and other payment obligations, may not typically be accelerated by
the holders of such preferred stock on the occurrence of an event of default
or other non-compliance by the issuer of the preferred stock.
Warrants and other rights are options to buy a stated number of shares of
common stock at a specified price at any time during the life of the warrant
or right. The holders of warrants and rights have no voting rights, receive
no dividends and have no rights with respect to the assets of the issuer.
79
<PAGE>
Appendix B
Financial Highlights
The financial highlights tables are intended to help you understand a Fund's
financial performance for the past five years (or less if the Fund has been
in operation for less than five years). Certain information reflects finan-
cial results for a single Fund share. The total returns in the table repre-
sent the rate that an investor would have earned or lost on an investment in
a Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by Arthur Andersen LLP, whose report, along
with a Fund's financial statements, is included in the Fund's annual report
(available upon request without charge). No financial highlights are
included for the High Yield Municipal Fund because it had no operating his-
tory prior to the date of this Prospectus.
ADJUSTABLE RATE GOVERNMENT FUND
<TABLE>
<CAPTION>
Income (loss) from
investment operations/a/
-------------------------
Net asset
value, Net Net realized
beginning investment and unrealized
of period income gain (loss)
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
For the Years Ended October 31,
1999 - Class A Shares $9.69 $0.49 $(0.05)
1999 - Institutional Shares 9.70 0.53 (0.05)
1999 - Administration Shares/g/ 9.70 0.37/f/ 0.01/f/
1999 - Service Shares 9.70 0.48 (0.04)
- -------------------------------------------------------------------------------
1998 - Class A Shares 9.88 0.53 (0.17)
1998 - Institutional Shares 9.88 0.55 (0.16)
1998 - Administration Shares 9.88 0.53 (0.16)
1998 - Service Shares 9.88 0.51 (0.16)
- -------------------------------------------------------------------------------
1997 - Class A Shares 9.83 0.57/f/ 0.05/f/
1997 - Institutional Shares 9.83 0.59/f/ 0.05/f/
1997 - Administration Shares 9.83 0.57/f/ 0.05/f/
1997 - Service Shares (commenced March 27) 9.84 0.33/f/ 0.04/f/
- -------------------------------------------------------------------------------
1996 - Class A Shares 9.77 0.55/f/ 0.08/f/
1996 - Institutional Shares 9.77 0.57/f/ 0.08/f/
1996 - Administration Shares 9.77 0.55/f/ 0.08/f/
- -------------------------------------------------------------------------------
1995 - Class A Shares (commenced May 15) 9.79 0.27/f/ (0.01)/f/
1995 - Institutional Shares 9.74 0.56/f/ 0.07/f/
1995 - Administration Shares 9.74 0.54/f/ 0.07/f/
- -------------------------------------------------------------------------------
</TABLE>
(a) Includes the balancing effect of calculating per share amounts.
(b) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all distributions, a complete redemption of the investment
at the net asset value at the end of period and no sales charge. Total
return would be reduced if a sales or redemption charge were taken into
account.
(c) Annualized.
(d) Not annualized.
(e) Includes the effect of mortgage dollar roll transactions.
(f) Calculated based on the average shares outstanding methodology.
(g) Administration Shares were liquidated on July 20, 1999. Ending net asset
value shown as of July 20, 1999.
80
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Distributions
to shareholders
--------------------------------
In excess Net increase Net asset Net assets Ratio of net
From net of net (decrease) value, at end of expenses
investment investment From in net end of Total period to average
income income capital asset value period returnb (in 000s) net assets
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$(0.44) $ -- $(0.06) $(0.06) $9.63 4.65% $ 22,862 0.89%
(0.48) -- (0.06) (0.06) 9.64 5.06 315,024 0.49
(0.33) -- (0.04) 0.01 9.71g 4.02d -- 0.74c
(0.43) -- (0.06) (0.05) 9.65 4.65 797 0.99
- -----------------------------------------------------------------------------------------
(0.53) (0.02) -- (0.19) 9.69 3.71 60,782 0.80
(0.55) (0.02) -- (0.18) 9.70 4.09 441,228 0.53
(0.53) (0.02) -- (0.18) 9.70 3.83 5,999 0.78
(0.51) (0.02) -- (0.18) 9.70 3.57 822 1.03
- -----------------------------------------------------------------------------------------
(0.57) -- -- 0.05 9.88 6.43 43,393 0.74
(0.59) -- -- 0.05 9.88 6.70 463,511 0.49
(0.57) -- -- 0.05 9.88 6.43 2,793 0.74
(0.33) -- -- 0.04 9.88 3.81d 346 1.05c
- -----------------------------------------------------------------------------------------
(0.55) (0.02) -- 0.06 9.83 6.60 10,728 0.70
(0.57) (0.02) -- 0.06 9.83 6.86 613,149 0.45
(0.55) (0.02) -- 0.06 9.83 6.60 3,792 0.70
- -----------------------------------------------------------------------------------------
(0.27) (0.01) -- (0.02) 9.77 2.74d 15,203 0.69c
(0.57) (0.03) -- 0.03 9.77 6.75 657,358 0.46
(0.55) (0.03) -- 0.03 9.77 6.48 3,572 0.71
- -----------------------------------------------------------------------------------------
</TABLE>
81
<PAGE>
ADJUSTABLE RATE GOVERNMENT FUND (continued)
<TABLE>
<CAPTION>
Ratios assuming
no voluntary waiver
of fees or
expense limitations
---------------------
Ratio of Ratio of
net net
investment Ratio of investment
income expenses income Portfolio
to average to average to average turnover
net assets net assets net assets ratee
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
For the Years Ended October 31,
1999 - Class A Shares 5.15% 0.93% 5.11% 38.86%
1999 - Institutional Shares 5.49 0.53 5.45 38.86
1999 - Administration Sharesg 5.35c 0.78c 5.31c 38.86
1999 - Service Shares 4.99 1.03 4.95 38.86
- ----------------------------------------------------------------------------
1998 - Class A Shares 5.40 1.02 5.18 33.64
1998 - Institutional Shares 5.63 0.53 5.63 33.64
1998 - Administration Shares 5.33 0.78 5.33 33.64
1998 - Service Shares 5.09 1.03 5.09 33.64
- ----------------------------------------------------------------------------
1997 - Class A Shares 5.60 1.02 5.32 46.58
1997 - Institutional Shares 5.99 0.52 5.96 46.58
1997 - Administration Shares 5.73 0.77 5.70 46.58
1997 - Service Shares (commenced
March 27) 5.64c 1.08c 5.61c 46.58
- ----------------------------------------------------------------------------
1996 - Class A Shares 5.59 1.01 5.28 52.36
1996 - Institutional Shares 5.85 0.51 5.79 52.36
1996 - Administration Shares 5.59 0.76 5.53 52.36
- ----------------------------------------------------------------------------
1995 - Class A Shares (commenced
May 15) 5.87c 1.01c 5.55c 24.12
1995 - Institutional Shares 5.77 0.53 5.70 24.12
1995 - Administration Shares 5.50 0.78 5.43 24.12
- ----------------------------------------------------------------------------
</TABLE>
(a) Includes the balancing effect of calculating per share amounts.
(b) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all distributions, a complete redemption of the investment
at the net asset value at the end of period and no sales charge. Total
return would be reduced if a sales charge for Class A shares were taken
into account.
(c) Annualized.
(d) Not annualized.
(e) Includes the effect of mortgage dollar roll transactions.
(f) Calculated based on the average shares outstanding methodology.
(g) Administration Shares were liquidated on July 20, 1999. Ending net asset
value shown as of July 20, 1999.
82
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83
<PAGE>
SHORT DURATION GOVERNMENT FUND
<TABLE>
<CAPTION>
Income (loss) from
investment operationsa
-------------------------
Net asset
value, Net Net realized
beginning investment and unrealized
of period income gain (loss)
- --------------------------------------------------------------------
<S> <C> <C> <C>
For the Years Ended October 31,
1999 - Class A Shares $9.91 $0.55 $(0.36)
1999 - Class B Shares 9.88 0.48 (0.33)
1999 - Class C Shares 9.88 0.47 (0.36)
1999 - Institutional Shares 9.90 0.59 (0.35)
1999 - Administration Sharesh 9.91 0.40f (0.25)f
1999 - Service Shares 9.89 0.54 (0.35)
- --------------------------------------------------------------------
1998 - Class A Shares 9.88 0.57 0.04
1998 - Class B Shares 9.86 0.51 0.03
1998 - Class C Shares 9.86 0.49 0.03
1998 - Institutional Shares 9.86 0.58 0.06
1998 - Administration Shares 9.89 0.55 0.05
1998 - Service Shares 9.86 0.55 0.04
- --------------------------------------------------------------------
1997 - Class A Shares
(commenced May 1) 9.78 0.31f 0.09f
1997 - Class B Shares
(commenced May 1) 9.75 0.28f 0.10f
1997 - Class C Shares
(commenced August 15) 9.83 0.12f 0.02f
1997 - Institutional Shares 9.83 0.64f 0.03f
1997 - Administration Shares 9.85 0.62f 0.04f
1997 - Service Shares 9.82 0.59f 0.04f
- --------------------------------------------------------------------
1996 - Institutional Shares 9.82 0.63f 0.01f
1996 - Administration Sharesg 9.86 0.38f --f
1996 - Service Shares
(commenced April 10) 9.72 0.31f 0.10f
- --------------------------------------------------------------------
1995 - Institutional Shares 9.64 0.66f 0.17f
1995 - Administration Sharesg 9.64 0.24f (0.04)f
- --------------------------------------------------------------------
</TABLE>
(a) Includes the balancing effect of calculating per share amounts.
(b) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all distributions, a complete redemption of the investment
at the net asset value at the end of the period and no sales charge. Total
return would be reduced if a sales or redemption charge were taken into
account.
(c) Annualized.
(d) Not annualized.
(e) Includes the effect of mortgage dollar roll transactions.
(f) Calculated based on the average shares outstanding methodology.
(g) Short Duration Government Fund Administration Shares commenced activity on
April 15, 1993, were redeemed in full on February 23, 1995 and re-commenced
on February 28, 1996 at $9.86.
(h) Administration Shares were liquidated on July 20, 1999. Ending net asset
value shown as of July 20, 1999.
84
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Distributions
to
shareholders
-------------
Net
increase Net asset Net assets Ratio of net
From net (decrease) value, at end of expenses
investment in net end of Total period to average
income asset value period returnb (in 000s) net assets
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$(0.53) $(0.34) $9.57 1.97% $ 52,235 0.94%
(0.47) (0.32) 9.56 1.56 6,937 1.54
(0.45) (0.34) 9.54 1.21 7,029 1.69
(0.57) (0.33) 9.57 2.49 146,062 0.54
(0.39) (0.24) 9.67h 1.57d -- 0.79c
(0.52) (0.33) 9.56 1.97 6,605 1.04
- --------------------------------------------------------------------------------
(0.58) 0.03 9.91 6.36 56,725 0.81
(0.52) 0.02 9.88 5.62 5,025 1.41
(0.50) 0.02 9.88 5.46 4,527 1.56
(0.60) 0.04 9.90 6.75 145,514 0.53
(0.58) 0.02 9.91 6.27 7,357 0.78
(0.56) 0.03 9.89 6.12 6,232 1.03
- --------------------------------------------------------------------------------
(0.30) 0.10 9.88 4.14d 9,491 0.70c
(0.27) 0.11 9.86 3.94d 747 1.30c
(0.11) 0.03 9.86 1.44d 190 1.45c
(0.64) 0.03 9.86 7.07 103,729 0.45
(0.62) 0.04 9.89 6.91 1,060 0.70
(0.59) 0.04 9.86 6.63 3,337 0.95
- --------------------------------------------------------------------------------
(0.63) 0.01 9.83 6.75 99,944 0.45
(0.39) (0.01) 9.85 4.00d 252 0.70c
(0.31) 0.10 9.82 4.35d 1,822 0.95c
- --------------------------------------------------------------------------------
(0.65) 0.18 9.82 8.97 103,760 0.45
(0.21) (0.01) 9.63 2.10d -- 0.70c
- --------------------------------------------------------------------------------
</TABLE>
85
<PAGE>
SHORT DURATION GOVERNMENT FUND (continued)
<TABLE>
<CAPTION>
Ratios assuming no
voluntary waiver of
fees
or expense limitations
-----------------------
Ratio of net Ratio of net
investment Ratio of investment
income expenses income Portfolio
to average to average to average turnover
net assets net assets net assets ratee
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
For the Years Ended October 31,
1999 - Class A Shares 5.61% 1.07% 5.48% 172.61%
1999 - Class B Shares 5.04 1.82 4.76 172.61
1999 - Class C Shares 4.83 1.82 4.70 172.61
1999 - Institutional Shares 6.03 0.67 5.90 172.61
1999 - Administration Sharesh 5.76c 0.92c 5.63c 172.61
1999 - Service Shares 5.54 1.17 5.41 172.61
- -------------------------------------------------------------------------------
1998 - Class A Shares 5.68 1.32 5.17 119.89
1998 - Class B Shares 5.12 1.87 4.66 119.89
1998 - Class C Shares 4.64 1.87 4.33 119.89
1998 - Institutional Shares 6.06 0.84 5.75 119.89
1998 - Administration Shares 5.76 1.09 5.45 119.89
1998 - Service Shares 5.56 1.34 5.25 119.89
- -------------------------------------------------------------------------------
1997 - Class A Shares
(commenced May 1) 6.05c 1.32c 5.43c 102.58
1997 - Class B Shares
(commenced May 1) 5.52c 1.82c 5.00c 102.58
1997 - Class C Shares
(commenced August 15) 5.52c 1.82c 5.15c 102.58
1997 - Institutional Shares 6.43 0.82 6.06 102.58
1997 - Administration Shares 6.19 1.07 5.82 102.58
1997 - Service Shares 5.92 1.32 5.55 102.58
- -------------------------------------------------------------------------------
1996 - Institutional Shares 6.44 0.71 6.18 115.45
1996 - Administration Sharesg 5.97c 0.96c 5.71c 115.45
1996 - Service Shares
(commenced April 10) 6.05c 1.21c 5.79c 115.45
- -------------------------------------------------------------------------------
1995 - Institutional Shares 6.87 0.72 6.60 292.56
1995 - Administration Sharesg 7.91c 0.90c 7.71c 292.56
- -------------------------------------------------------------------------------
</TABLE>
(a) Includes the balancing effect of calculating per share amounts.
(b) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all distributions, a complete redemption of the investment
at the net asset value at the end of the period and no sales charge. Total
return would be reduced if a sales or redemption charge were taken into
account.
(c) Annualized.
(d) Not annualized.
(e) Includes the effect of mortgage dollar roll transactions.
(f) Calculated based on the average shares outstanding methodology.
(g) Short Duration Government Fund Administration Shares commenced activity on
April 15, 1993, were redeemed in full on February 23, 1995 and re-commenced
on February 28, 1996 at $9.86.
(h) Administration Shares were liquidated on July 20, 1999. Ending net asset
value shown as of July 20, 1999.
86
<PAGE>
[This page intentionally left blank]
87
<PAGE>
SHORT DURATION TAX-FREE FUND
<TABLE>
<CAPTION>
Income (loss) from
investment operationsa
-------------------------
Net realized
and unrealized
Net asset gain (loss)
value, Net on investment
beginning investment and futures
of period income transactions
- --------------------------------------------------------------------
<S> <C> <C> <C>
For the Years Ended October 31,
1999 - Class A Shares $10.19 $0.34 $(0.24)
1999 - Class B Shares 10.18 0.28 (0.23)
1999 - Class C Shares 10.18 0.26 (0.22)
1999 - Institutional Shares 10.18 0.38 (0.23)
1999 - Administration Sharesf 10.18 0.26e (0.12)e
1999 - Service Shares 10.18 0.33e (0.24)e
- --------------------------------------------------------------------
1998 - Class A Shares 10.08 0.36e 0.13e
1998 - Class B Shares 10.08 0.30e 0.12e
1998 - Class C Shares 10.07 0.28e 0.14e
1998 - Institutional Shares 10.07 0.39e 0.13e
1998 - Administration Shares 10.07 0.36e 0.13e
1998 - Service Shares 10.07 0.34e 0.13e
- --------------------------------------------------------------------
1997 - Class A Shares
(commenced May 1) 9.94 0.20e 0.14e
1997 - Class B Shares
(commenced May 1) 9.94 0.16e 0.14e
1997 - Class C Shares
(commenced August 15) 10.04 0.07e 0.03e
997 - Institutional Shares 9.96 0.42e 0.11e
1997 - Administration Shares 9.96 0.39e 0.11e
1997 - Service Shares 9.97 0.37e 0.10e
- --------------------------------------------------------------------
1996 - Institutional Shares 9.94 0.42e 0.02e
1996 - Administration Shares 9.94 0.39e 0.02e
1996 - Service Shares 9.95 0.37e 0.02e
- --------------------------------------------------------------------
1995 - Institutional Shares 9.79 0.42e 0.15e
1995 - Administration Shares 9.79 0.40e 0.15e
1995 - Service Shares 9.79 0.37e 0.16e
- --------------------------------------------------------------------
</TABLE>
(a) Includes the balancing effect of calculating per share amounts.
(b) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all distributions, a complete redemption of the investment
at the net asset value at the end of period and no sales charge. Total
return would be reduced if a sales or redemption charge were taken into
account.
(c) Annualized.
(d) Not annualized.
(e) Calculated based on the average shares outstanding methodology.
(f) Administration Shares were liquidated on July 20, 1999. Ending net asset
value shown as of July 20, 1999.
88
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Distributions to shareholders
------------------------------------
Net Net Ratio of
In excess increase assets net
From net of net (decrease) Net asset at end of expenses
investment investment in net value, Total period to average
income income asset value end of period returnb (in 000s) net assets
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$(0.34) $(0.02) $(0.26) $ 9.93 1.00% $22,903 0.79%
(0.28) (0.02) (0.25) 9.93 0.49 2,000 1.39
(0.26) (0.03) (0.25) 9.93 0.34 2,070 1.54
(0.39) (0.01) (0.25) 9.93 1.50 77,522 0.39
(0.27) -- (0.13) 10.05f 1.37d -- 0.64c
(0.33) (0.02) (0.26) 9.92 0.89 173 0.89
- ------------------------------------------------------------------------------------------------
(0.38) -- 0.11 10.19 4.97 19,881 0.71
(0.32) -- 0.10 10.18 4.25 974 1.31
(0.31) -- 0.11 10.18 4.19 2,256 1.46
(0.41) -- 0.11 10.18 5.25 57,647 0.45
(0.38) -- 0.11 10.18 4.99 525 0.70
(0.36) -- 0.11 10.18 4.73 2,560 0.95
- ------------------------------------------------------------------------------------------------
(0.20) -- 0.14 10.08 3.39d 4,023 0.70c
(0.16) -- 0.14 10.08 3.07d 106 1.30c
(0.07) -- 0.03 10.07 0.97d 2 1.45c
(0.42) -- 0.11 10.07 5.40 28,821 0.45
(0.39) -- 0.11 10.07 5.14 77 0.70
(0.37) -- 0.10 10.07 4.77 2,051 0.95
- ------------------------------------------------------------------------------------------------
(0.42) -- 0.02 9.96 4.50 34,814 0.45
(0.39) -- 0.02 9.96 4.24 48 0.70
(0.37) -- 0.02 9.97 3.98 695 0.95
- ------------------------------------------------------------------------------------------------
(0.42) -- 0.15 9.94 5.98 58,389 0.45
(0.40) -- 0.15 9.94 5.76 46 0.70
(0.37) -- 0.16 9.95 5.59 454 0.95
- ------------------------------------------------------------------------------------------------
</TABLE>
89
<PAGE>
SHORT DURATION TAX-FREE FUND (continued)
<TABLE>
<CAPTION>
Ratios assuming
no voluntary waiver
of fees or
expense limitations
---------------------
Ratio of Ratio of
net net
investment Ratio of investment
income expenses income Portfolio
to average to average to average turnover
net assets net assets net assets rate
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
For the Years Ended October 31,
1999 - Class A Shares 3.37% 1.06% 3.10% 147.20%
1999 - Class B Shares 2.80 1.81 2.38 147.20
1999 - Class C Shares 2.62 1.81 2.35 147.20
1999 - Institutional Shares 3.79 0.66 3.52 147.20
1999 - Administration Sharesf 3.56c 0.91c 3.29c 147.20
1999 - Service Shares 3.23 1.16 2.96 147.20
- ----------------------------------------------------------------------------
1998 - Class A Shares 3.54 1.74 2.51 140.72
1998 - Class B Shares 3.06 2.27 2.10 140.72
1998 - Class C Shares 2.82 2.27 2.01 140.72
1998 - Institutional Shares 3.92 1.26 3.11 140.72
1998 - Administration Shares 3.58 1.51 2.77 140.72
1998 - Service Shares 3.44 1.76 2.63 140.72
- ----------------------------------------------------------------------------
1997 - Class A Shares (commenced
May 1) 3.81c 1.73c 2.78c 194.75
1997 - Class B Shares (commenced
May 1) 3.31c 2.23c 2.38c 194.75
1997 - Class C Shares (commenced
August 15) 2.60c 2.23c 1.82c 194.75
1997 - Institutional Shares 4.18 1.23 3.40 194.75
1997 - Administration Shares 3.91 1.48 3.13 194.75
1997 - Service Shares 3.66 1.73 2.88 194.75
- ----------------------------------------------------------------------------
1996 - Institutional Shares 4.21 1.01 3.65 231.65
1996 - Administration Shares 3.96 1.26 3.40 231.65
1996 - Service Shares 3.74 1.51 3.18 231.65
- ----------------------------------------------------------------------------
1995 - Institutional Shares 4.31 0.77 3.99 259.52
1995 - Administration Shares 4.14 1.02 3.82 259.52
1995 - Service Shares 3.87 1.27 3.55 259.52
- ----------------------------------------------------------------------------
</TABLE>
(a) Includes the balancing effect of calculating per share amounts.
(b) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all distributions, a complete redemption of the investment
at the net asset value at the end of period and no sales charge. Total
return would be reduced if a sales or redemption charge were taken into
account.
(c) Annualized.
(d) Not annualized.
(e) Calculated based on the average shares outstanding methodology.
(f) Administration Shares were liquidated on July 20, 1999. Ending net asset
value shown as of July 20, 1999.
90
<PAGE>
[This page intentionally left blank]
91
<PAGE>
GOVERNMENT INCOME FUND
<TABLE>
<CAPTION>
Income (loss) from
investment operationsa
-------------------------
Net asset
value, Net Net realized
beginning investment and unrealized
of period income gain (loss)
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
For the Years Ended October 31,
1999 - Class A Shares $14.91 $0.80 $(0.89)
1999 - Class B Shares 14.92 0.69 (0.87)
1999 - Class C Shares 14.91 0.69 (0.88)
1999 - Institutional Shares 14.90 0.85 (0.88)
1999 - Service Shares 14.88 0.77 (0.92)
- ----------------------------------------------------------------------------
1998 - Class A Shares 14.59 0.81 0.45
1998 - Class B Shares 14.61 0.72 0.42
1998 - Class C Shares 14.60 0.74 0.40
1998 - Institutional Shares 14.59 0.87 0.42
1998 - Service Shares 14.59 0.80 0.40
- ----------------------------------------------------------------------------
1997 - Class A Shares 14.36 0.91 0.29
1997 - Class B Shares 14.37 0.80 0.30
1997 - Class C Shares (commenced August
15) 14.38 0.17 0.22
1997 - Institutional Shares (commenced
August 15) 14.37 0.20 0.22
1997 - Service Shares (commenced August
15) 14.37 0.20 0.21
- ----------------------------------------------------------------------------
1996 - Class A Shares 14.47 0.92 (0.11)
1996 - Class B Shares (commenced May 1) 14.11 0.41 0.26
- ----------------------------------------------------------------------------
1995 - Class A Shares 13.47 0.94 1.00
- ----------------------------------------------------------------------------
</TABLE>
(a) Includes the balancing effect of calculating per share amounts.
(b) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all distributions, a complete redemption of the investment
at the net asset value at the end of the period and no sales charge. Total
return would be reduced if a sales or redemption charge were taken into
account.
(c) Annualized.
(d) Not annualized.
(e) Includes the effect of mortgage dollar roll transactions.
92
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Distributions to shareholders
---------------------------------------
Net
In excess increase Net asset Net assets
From net of net (decrease) value, at end of
investment investment From net in net end Total period
income income realized gains asset value of period returnb (in 000s)
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$(0.77) $ -- $(0.35) $(1.21) $13.70 (0.63)% $ 82,102
(0.67) -- (0.35) (1.20) 13.72 (1.29) 19,684
(0.66) -- (0.35) (1.20) 13.71 (1.29) 10,053
(0.83) -- (0.35) (1.21) 13.69 (0.23) 5,899
(0.75) -- (0.35) (1.25) 13.63 (1.01) 15
---------------------------------------------------------------------------------
(0.81) (0.07) (0.06) 0.32 14.91 8.98 101,015
(0.72) (0.05) (0.06) 0.31 14.92 8.09 16,125
(0.74) (0.03) (0.06) 0.31 14.91 8.09 9,639
(0.87) (0.05) (0.06) 0.31 14.90 9.19 2,642
(0.80) (0.05) (0.06) 0.29 14.88 8.53 2
---------------------------------------------------------------------------------
(0.90) -- (0.07) 0.23 14.59 8.72 68,859
(0.79) -- (0.07) 0.24 14.61 7.96 8,041
(0.17) -- -- 0.22 14.60 2.72d 1,196
(0.20) -- -- 0.22 14.59 2.94d 1,894
(0.19) -- -- 0.22 14.59 2.85d 2
---------------------------------------------------------------------------------
(0.92) -- -- (0.11) 14.36 5.80 30,603
(0.41) -- -- 0.26 14.37 4.85d 234
---------------------------------------------------------------------------------
(0.94) -- -- 1.00 14.47 14.90 29,503
---------------------------------------------------------------------------------
</TABLE>
93
<PAGE>
GOVERNMENT INCOME FUND (continued)
<TABLE>
<CAPTION>
Ratios assuming no
voluntary waiver of fees
or expense limitations
-------------------------
Ratio of
net Ratio of net
Ratio of investment Ratio of investment
net expenses income expenses income Portfolio
to average to average to average to average turnover
net assets net assets net assets net assets rate e
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
For the Years Ended October 31,
1999 - Class A Shares 0.98% 5.63% 1.33% 5.28% 277.64%
1999 - Class B Shares 1.73 4.88 2.08 4.53 277.64
1999 - Class C Shares 1.73 4.89 2.08 4.54 277.64
1999 - Institutional Shares 0.58 6.07 0.93 5.72 277.64
1999 - Service Shares 1.08 5.56 1.43 5.21 277.64
- --------------------------------------------------------------------------------------------
1998 - Class A Shares 0.76 5.53 1.53 4.76 315.43
1998 - Class B Shares 1.51 4.76 2.05 4.22 315.43
1998 - Class C Shares 1.51 4.59 2.05 4.05 315.43
1998 - Institutional Shares 0.51 5.82 1.05 5.28 315.43
1998 - Service Shares 1.01 5.48 1.55 4.94 315.43
- --------------------------------------------------------------------------------------------
1997 - Class A Shares 0.50 6.38 1.82 5.06 395.75
1997 - Class B Shares 1.25 5.59 2.32 4.52 395.75
1997 - Class C Shares
(commenced August 15) 1.25c 5.45c 2.32c 4.38c 395.75
1997 - Institutional Shares
(commenced August 15) 0.25c 7.03c 1.32c 5.96c 395.75
1997 - Service Shares
(commenced August 15) 0.75c 6.49c 1.82c 5.42c 395.75
- --------------------------------------------------------------------------------------------
1996 - Class A Shares 0.50 6.42 1.89 5.03 485.09
1996 - Class B Shares
(commenced May 1) 1.25c 5.65c 2.39c 4.51c 485.09
- --------------------------------------------------------------------------------------------
1995 - Class A Shares 0.47 6.67 2.34 4.80 449.53
- --------------------------------------------------------------------------------------------
</TABLE>
(a) Includes the balancing effect of calculating per share amounts.
(b) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all distributions, a complete redemption of the investment
at the net asset value at the end of the period and no sales charge. Total
return would be reduced if a sales or redemption charge were taken into
account.
(c) Annualized.
(d) Not annualized.
(e) Includes the effect of mortgage dollar roll transactions.
94
<PAGE>
[This page intentionally left blank]
95
<PAGE>
MUNICIPAL INCOME FUND
<TABLE>
<CAPTION>
Income (loss) from
investment operationsa
-------------------------
Net realized
and unrealized
Net asset gain (loss) on
value, Net investment
beginning investment and futures
of period income transactions
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
For the Years Ended October 31,
1999 - Class A Shares $15.47 $0.63 $(1.29)
1999 - Class B Shares 15.47 0.51 (1.28)
1999 - Class C Shares 15.47 0.51 (1.28)
1999 - Institutional Shares 15.47 0.70 (1.30)
1999 - Service Shares 15.48 0.65 (1.32)
- ---------------------------------------------------------------------------------
1998 - Class A Shares 14.99 0.65 0.50
1998 - Class B Shares 15.00 0.53 0.49
1998 - Class C Shares 14.99 0.53 0.50
1998 - Institutional Shares 15.00 0.68 0.50
1998 - Service Shares 14.99 0.64 0.49
- ---------------------------------------------------------------------------------
1997 - Class A Shares 14.37 0.67 0.62
1997 - Class B Shares 14.37 0.56 0.63
1997 - Class CShares (commenced August 15) 14.85 0.12 0.14
1997 -
Institutional Shares (commenced August 15) 14.84 0.15 0.16
1997 - Service Shares (commenced August 15) 14.84 0.14 0.15
- ---------------------------------------------------------------------------------
1996 - Class A Shares 14.17 0.65 0.20
1997 - Class B Shares (commenced May 1) 14.03 0.27 0.34
- ---------------------------------------------------------------------------------
1995 - Class A Shares 13.08 0.67 1.09
- ---------------------------------------------------------------------------------
</TABLE>
(a) Includes the balancing effect of calculating per share amounts.
(b) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all distributions, a complete redemption of the investment
at the net asset value at the end of the period and no sales charge. Total
return would be reduced if a sales or redemption charge were taken into
account.
(c) Annualized.
(d) Not annualized.
96
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Distributions to shareholders
-------------------------------------
From
net realized Net
From In excess gain on increase Net assets Ratio of
net of net investment (decrease) Net asset at end of net expenses
investment investment and futures in net value, Total period to average
income income transactions asset value end of period returnb (in 000s) net assets
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$(0.65) $ -- $(0.09) $(1.40) $14.07 (4.46)% $90,443 0.94%
(0.52) (0.01) (0.09) (1.39) 14.08 (5.10) 9,334 1.69
(0.51) (0.02) (0.09) (1.39) 14.08 (5.10) 4,379 1.69
(0.70) (0.01) (0.09) (1.40) 14.07 (4.07) 16,197 0.54
(0.63) -- (0.09) (1.39) 14.09 (4.49) 2 1.04
- -------------------------------------------------------------------------------------------------
(0.64) -- (0.03) 0.48 15.47 7.79 91,158 0.87
(0.52) -- (0.03) 0.47 15.47 6.91 6,722 1.62
(0.52) -- (0.03) 0.48 15.47 6.98 2,862 1.62
(0.68) -- (0.03) 0.47 15.47 8.00 6,154 0.58
(0.61) -- (0.03) 0.49 15.48 7.68 2 1.08
- -------------------------------------------------------------------------------------------------
(0.67) -- -- 0.62 14.99 9.23 64,553 0.85
(0.56) -- -- 0.63 15.00 8.48 1,750 1.60
(0.12) -- -- 0.14 14.99 1.75d 130 1.60c
(0.15) -- -- 0.16 15.00 2.10d 351 0.60c
(0.14) -- -- 0.15 14.99 1.93d 2 1.10c
- -------------------------------------------------------------------------------------------------
(0.65) -- -- 0.20 14.37 6.13 52,267 0.85
(0.27) -- -- 0.34 14.37 4.40d 255 1.60c
- -------------------------------------------------------------------------------------------------
(0.67) -- -- 1.09 14.17 13.79 53,797 0.76
- -------------------------------------------------------------------------------------------------
</TABLE>
97
<PAGE>
MUNICIPAL INCOME FUND (continued)
<TABLE>
<CAPTION>
Ratios assuming no
voluntary waiver of fees
or expense limitations
--------------------------
Ratio of net Ratio of net
investment Ratio of investment
income expenses income Portfolio
to average to average to average turnover
net assets net assets net assets rate
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
For the Years Ended October 31,
1999 - Class A Shares 4.15% 1.14% 3.95% 70.31%
1999 - Class B Shares 3.40 1.89 3.20 70.31
1999 - Class C Shares 3.40 1.89 3.20 70.31
1999 - Institutional Shares 4.58 0.74 4.38 70.31
1999 - Service Shares 4.35 1.24 4.15 70.31
- ----------------------------------------------------------------------------------------------
1998 - Class A Shares 4.25 1.64 3.48 56.51
1998 - Class B Shares 3.44 2.16 2.90 56.51
1998 - Class C Shares 3.38 2.16 2.84 56.51
1998 - Institutional Shares 4.41 1.12 3.87 56.51
1998 - Service Shares 4.21 1.62 3.67 56.51
- ----------------------------------------------------------------------------------------------
1997 - Class A Shares 4.60 1.62 3.83 153.12
1997 - Class B Shares 3.74 2.12 3.22 153.12
1997 - Class C Shares (commenced August 15) 3.24c 2.12c 2.72c 153.12
1997 -
InstitutionalShares (commenced August 15) 4.41c 1.12c 3.89c 153.12
1997 - Service Shares (commenced August 15) 4.24c 1.62c 3.72c 153.12
- ----------------------------------------------------------------------------------------------
1996 - Class A Shares 4.58 1.55 3.88 344.13
1996 - Class B Shares (commenced May 1) 3.55c 2.05c 3.10c 344.13
- ----------------------------------------------------------------------------------------------
1995 - Class A Shares 4.93 1.49 4.20 335.55
- ----------------------------------------------------------------------------------------------
</TABLE>
(a) Includes the balancing effect of calculating per share amounts.
(b) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all distributions, a complete redemption of the investment
at the net asset value at the end of the period and no sales charge. Total
return would be reduced if a sales or redemption charge were taken into
account.
(c) Annualized.
(d) Not annualized.
98
<PAGE>
[This page intentionally left blank]
99
<PAGE>
CORE FIXED INCOME FUND
<TABLE>
<CAPTION>
Income (loss) from
investment operationsa
-------------------------
Net asset
value, Net Net realized
beginning investment and unrealized
of period income gains (loss)
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
For the Years Ended October 31,
1999-Class A Shares $10.25 $0.54 $(0.61)
1999-Class B Shares 10.28 0.48 (0.62)
1999-Class C Shares 10.28 0.47 (0.62)
1999-Institutional Shares 10.28 0.58 (0.62)
1999-Administration Sharesg 10.27 0.40f (0.41)f
1999-Service Shares 10.28 0.54 (0.62)
- ------------------------------------------------------------------------------
1998-Class A Shares 10.06 0.59 0.27
1998-Class B Shares 10.09 0.52 0.27
1998-Class C Shares 10.09 0.52 0.27
1998-Institutional Shares 10.08 0.61 0.29
1998-Administration Shares 10.07 0.57 0.29
1998-Service Shares 10.09 0.56 0.27
- ------------------------------------------------------------------------------
1997-Class A Shares (commenced May 1) 9.70 0.30 0.36
1997-Class B Shares (commenced May 1) 9.72 0.27 0.37
1997-Class C Shares (commenced August 15) 9.93 0.11 0.16
1997-Institutional Shares 9.85 0.64 0.23
1997-Administration Shares 9.84 0.62 0.23
1997-Service Shares 9.86 0.59 0.23
- ------------------------------------------------------------------------------
1996-Institutional Shares 10.00 0.64 (0.07)
1996-Administrative Shares (commenced
February 28) 9.91 0.41 (0.07)
1996-Service Shares (commenced March 13) 9.77 0.38 0.09
- ------------------------------------------------------------------------------
1995-Institutional Shares 9.24 0.64 0.76
- ------------------------------------------------------------------------------
</TABLE>
(a) Includes the balancing effect of calculating per share amounts.
(b) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all distributions, a complete redemption of the investment
at the net asset value at the end of period and no sales charge. Total
return would be reduced if a sales or redemption charge were taken into
account.
(c) Annualized.
(d) Not annualized.
(e) Includes the effect of mortgage dollar roll transactions.
(f) Calculated based on average shares outstanding methodology.
(g) Administration Shares were liquidated on July 20, 1999. Ending net asset
value shown as of July 20, 1999.
100
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Distributions to shareholders
---------------------------------
Net
increase Net Net assets Ratio of
In excess (decrease) asset at end net
From net of net From net in net value, of expenses
investment investment realized asset end of Total period to average
income income gains value period returnb (in 000s) net assets
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$(0.53) $ -- $(0.15) $(0.75) $ 9.50 (0.68)% $ 65,368 0.94%
(0.47) -- (0.15) (0.76) 9.52 (1.47) 14,654 1.69
(0.46) -- (0.15) (0.76) 9.52 (1.51) 7,443 1.69
(0.57) -- (0.15) (0.76) 9.52 (0.37) 216,973 0.54
(0.40) -- (0.15) (0.56) 9.71g (0.13)d -- 0.79c
(0.53) -- (0.15) (0.76) 9.52 (0.87) 8,172 1.04
- ------------------------------------------------------------------------------------
(0.59) (0.02) (0.06) 0.19 10.25 8.76 56,267 0.74
(0.52) (0.02) (0.06) 0.19 10.28 7.94 7,209 1.49
(0.52) (0.02) (0.06) 0.19 10.28 7.94 5,587 1.49
(0.61) (0.03) (0.06) 0.20 10.28 9.15 195,730 0.46
(0.57) (0.03) (0.06) 0.20 10.27 8.88 12,743 0.71
(0.56) (0.02) (0.06) 0.19 10.28 8.50 5,263 0.96
- ------------------------------------------------------------------------------------
(0.30) -- -- 0.36 10.06 6.94d 9,336 0.70c
(0.27) -- -- 0.37 10.09 6.63d 621 1.45c
(0.11) -- -- 0.16 10.09 2.74d 272 1.45c
(0.64) -- -- 0.23 10.08 9.19 79,230 0.45
(0.62) -- -- 0.23 10.07 8.92 6,176 0.70
(0.59) -- -- 0.23 10.09 8.65 1,868 0.95
- ------------------------------------------------------------------------------------
(0.64) -- (0.08) (0.15) 9.85 5.98 72,061 0.45
(0.41) -- -- (0.07) 9.84 3.56d 702 0.70c
(0.38) -- -- 0.09 9.86 4.90d 381 0.95c
- ------------------------------------------------------------------------------------
(0.64) -- -- 0.76 10.00 15.72 55,502 0.45
- ------------------------------------------------------------------------------------
</TABLE>
101
<PAGE>
CORE FIXED INCOME FUND (continued)
<TABLE>
<CAPTION>
Ratios assuming no
voluntary waiver of
fees
or expense
limitations
---------------------
Ratio of Ratio of
net net
investment Ratio of investment
income expenses income Portfolio
to average to average to average turnover
net assets net assets net assets ratee
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
For the Years Ended October 31,
1999-Class A Shares 5.57% 0.98% 5.53% 279.67%
1999-Class B Shares 4.83 1.73 4.79 279.67
1999-Class C Shares 4.82 1.73 4.78 279.67
1999-Institutional Shares 5.97 0.58 5.93 279.67
1999-Administration Sharesg 5.63c 0.83c 5.59c 279.67
1999-Service Shares 5.50 1.08 5.46 279.67
- ------------------------------------------------------------------------------
1998-Class A Shares 5.58 1.21 5.11 271.50
1998-Class B Shares 4.82 1.75 4.56 271.50
1998-Class C Shares 4.81 1.75 4.55 271.50
1998-Institutional Shares 5.95 0.72 5.69 271.50
1998-Administration Shares 5.70 0.97 5.44 271.50
1998-Service Shares 5.44 1.22 5.18 271.50
- ------------------------------------------------------------------------------
1997-Class A Shares (commenced May
1) 6.13c 1.33c 5.50c 361.27
1997-Class B Shares (commenced May
1) 5.28c 1.83c 4.90c 361.27
1997-Class C Shares (commenced
August 15) 4.84c 1.83c 4.46c 361.27
1997-Institutional Shares 6.53 0.83 6.15 361.27
1997-Administration Shares 6.27 1.08 5.89 361.27
1997-Service Shares 6.00 1.33 5.62 361.27
- ------------------------------------------------------------------------------
1996-Institutional Shares 6.51 0.83 6.13 414.20
1996-Administrative Shares
(commenced February 28) 6.41c 1.08c 6.03c 414.20
1996-Service Shares (commenced
March 13) 6.37c 1.33c 5.99c 414.20
- ------------------------------------------------------------------------------
1995-Institutional Shares 6.56 0.96 6.05 382.26
</TABLE>
- --------------------------------------------------------------------------------
(a) Includes the balancing effect of calculating per share amounts.
(b) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all distributions, a complete redemption of the investment
at the net asset value at the end of period and no sales charge. Total
return would be reduced if a sales or redemption charge were taken into
account.
(c) Annualized.
(d) Not annualized.
(e) Includes the effect of mortgage dollar roll transactions.
(f) Calculated based on average shares outstanding methodology.
(g) Administration Shares were liquidated on July 20, 1999. Ending net asset
value shown as of July 20, 1999.
102
<PAGE>
[This page intentionally left blank]
103
<PAGE>
GLOBAL INCOME FUND
<TABLE>
<CAPTION>
Income (loss) from
investment operationsa
-------------------------
Net asset
value, Net Net realized
beginning investment and unrealized
of period income gain (loss)
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
For the Years Ended October 31,
1999 - Class A Shares $15.65 $0.62e $(0.78)e
1999 - Class B Shares 15.63 0.53 (0.78)
1999 - Class C Shares 15.60 0.53 (0.77)
1999 - Institutional Shares 15.64 0.71 (0.77)
1999 - Service Shares 15.64 0.64 (0.79)
- -------------------------------------------------------------------------------
1998 - Class A Shares 15.10 0.72e 0.90e
1998 - Class B Shares 15.08 0.63e 0.92e
1998 - Class C Shares 15.06 0.63e 0.91e
1998 - Institutional Shares 15.09 0.82e 0.90e
1998 - Service Shares 15.09 0.74e 0.91e
- -------------------------------------------------------------------------------
1997 - Class A Shares 14.53 0.59 0.77
1997 - Class B Shares 14.53 0.72 0.56
1997 - Class C Shares
(commenced August 15) 14.80 0.16 0.29
1997 - Institutional Shares 14.52 0.88 0.56
1997 - Service Shares (commenced March 12) 14.69 0.53 0.39
- -------------------------------------------------------------------------------
1996 - Class A Shares 14.45 0.71 0.80
1996 - Class B Shares (commenced May 1) 14.03 0.34 0.52
1996 - Institutional Shares 14.45 1.15 0.42
- -------------------------------------------------------------------------------
1995 - Class A Shares 13.43 0.89 1.07
1995 - Institutional Shares
(commenced August 1) 14.09 0.22 0.40
- -------------------------------------------------------------------------------
</TABLE>
(a) Includes the balancing effect of calculating per share amounts.
(b) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all distributions, a complete redemption of the investment
at the net asset value at the end of period and no sales charge. Total
return would be reduced if a sales or redemption charge were taken into
account.
(c) Annualized.
(d) Not annualized.
(e) Calculated based on the average shares outstanding methodology.
104
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Distributions to shareholders
- --------------------------------
Net
increase Net asset Net assets Ratio of
From net From (decrease) value, at end of net expenses
investment From net realized in net end of Total period to average
income capital gains asset value period returnb (in 000s) net assets
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$(0.61) $(0.03) $(0.36) $(1.16) $14.49 (1.14)% $271,832 1.34%
(0.55) (0.02) (0.36) (1.18) 14.45 (1.74) 16,724 1.84
(0.55) (0.02) (0.36) (1.17) 14.43 (1.68) 7,786 1.84
(0.71) (0.03) (0.36) (1.16) 14.48 (0.49) 279,621 0.69
(0.63) (0.03) (0.36) (1.17) 14.47 (1.06) 1,115 1.19
---------------------------------------------------------------------------------------
(1.01) -- (0.06) 0.55 15.65 11.21 217,362 1.31
(0.94) -- (0.06) 0.55 15.63 10.66 8,135 1.83
(0.94) -- (0.06) 0.54 15.60 10.65 4,090 1.83
(1.11) -- (0.06) 0.55 15.64 11.95 178,532 0.66
(1.04) -- (0.06) 0.55 15.64 11.43 1,058 1.16
---------------------------------------------------------------------------------------
(0.79) -- -- 0.57 15.10 9.66 167,096 1.17
(0.73) -- -- 0.55 15.08 9.04 3,465 1.71
(0.19) -- -- 0.26 15.06 3.03d 496 1.71c
(0.87) -- -- 0.57 15.09 10.26 60,929 0.65
(0.52) -- -- 0.40 15.09 6.42d 151 1.15c
---------------------------------------------------------------------------------------
(1.43) -- -- 0.08 14.53 11.05 198,665 1.16
(0.36) -- -- 0.50 14.53 6.24d 256 1.70c
(1.50) -- -- 0.07 14.52 11.55 54,254 0.65
---------------------------------------------------------------------------------------
(0.94) -- -- 1.02 14.45 15.08 245,835 1.29
(0.26) -- -- 0.36 14.45 4.42d 31,619 0.65c
---------------------------------------------------------------------------------------
</TABLE>
105
<PAGE>
GLOBAL INCOME FUND (continued)
<TABLE>
<CAPTION>
Ratios assuming no
voluntary waiver of fees
or expense limitations
--------------------------
Ratio of net Ratio of net
investment Ratio of investment
income expenses income Portfolio
to average to average to average turnover
net assets net assets net assets rate
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
For the Years Ended October 31,
1999 - Class A Shares 4.12% 1.72% 3.74% 158.27%
1999 - Class B Shares 3.60 2.22 3.22 158.27
1999 - Class C Shares 3.60 2.22 3.22 158.27
1999 - Institutional Shares 4.75 1.07 4.37 158.27
1999 - Service Shares 4.28 1.57 3.90 158.27
- ----------------------------------------------------------------------------------
1998 - Class A Shares 4.71 1.75 4.27 229.91
1998 - Class B Shares 4.19 2.24 3.78 229.91
1998 - Class C Shares 4.20 2.24 3.79 229.91
1998 - Institutional Shares 5.40 1.07 4.99 229.91
1998 - Service Shares 4.92 1.57 4.51 229.91
- ----------------------------------------------------------------------------------
1997 - Class A Shares 5.19 1.60 4.76 383.72
1997 - Class B Shares 4.76 2.10 4.37 383.72
1997 - Class C Shares
(commenced August 15) 4.98c 2.10c 4.59c 383.72
1997 - Institutional Shares 5.72 1.04 5.33 383.72
1997 - Service Shares
(commenced March 12) 5.33c 1.54c 4.94c 383.72
- ----------------------------------------------------------------------------------
1996 - Class A Shares 5.81 1.64 5.33 232.15
1996 - Class B Shares
(commenced May 1) 5.16c 2.14c 4.72c 232.15
1996 - Institutional Shares 6.35 1.11 5.89 232.15
- ----------------------------------------------------------------------------------
1995 - Class A Shares 6.23 1.58 5.94 265.86
1995 - Institutional
Shares (commenced August 1) 6.01c 1.08c 5.58c 265.86
- ----------------------------------------------------------------------------------
</TABLE>
(a) Includes the balancing effect of calculating per share amounts.
(b) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all distributions, a complete redemption of the investment
at the net asset value at the end of period and no sales charge. Total
return would be reduced if a sales or redemption charge were taken into
account.
(c) Annualized.
(d) Not annualized.
(e) Calculated based on the average shares outstanding methodology.
106
<PAGE>
[This page intentionally left blank]
107
<PAGE>
HIGH YIELD FUND
<TABLE>
<CAPTION>
Income (loss) from investment
operationsa
-------------------------------
Net realized
and unrealized
Net asset gain (loss) on
value, Net investment and
beginning investment foreign currency
of period income related transactions
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
For the Years Ended October 31,
1999 - Class A Shares $ 9.16 $0.85 $(0.10)
1999 - Class B Shares 9.16 0.77 (0.09)
1999 - Class C Shares 9.16 0.78 (0.11)
1999 - Institutional Shares 9.17 0.90e (0.12)e
1999 - Service Shares 9.17 0.86e (0.12)e
- ---------------------------------------------------------------------------
1998 - Class A Shares 9.97 0.82 (0.85)
1998 - Class B Shares 9.97 0.75 (0.86)
1998 - Class C Shares 9.97 0.75 (0.86)
1998 - Institutional Shares 9.97 0.84 (0.83)
1998 - Service Shares 9.97 0.80 (0.84)
- ---------------------------------------------------------------------------
For the Period Ended October 31,
1997 - Class A Shares (commenced
August 1) 10.00 0.17 (0.02)
1997 - Class B Shares (commenced
August 1) 10.00 0.15 (0.02)
1997 - Class C Shares (commenced
August 15) 9.97 0.14 0.01
1997 - Institutional Shares
(commenced August 1) 10.00 0.18 (0.02)
1997 - Service Shares (commenced
August 1) 10.00 0.17 (0.02)
- ---------------------------------------------------------------------------
</TABLE>
(a) Includes the balancing effect of calculating per share amounts.
(b) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all distributions, a complete redemption of the investment
at the net asset value at the end of period and no sales charge. Total
return would be reduced if a sales or redemption charge was taken into
account.
(c) Annualized.
(d) Not annualized.
(e) Calculated based on the average shares outstanding methodology.
108
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Distributions to
shareholders
- ---------------------
From In excess Net assets Ratio of
net of net Net decrease Net asset at end of net expenses
investment investment in net value, end Total period to average
income income asset value of period returnb (in 000s) net assets
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$(0.84) $ -- $(0.09) $9.07 8.06% $524,674 1.16%
(0.76) -- (0.08) 9.08 7.38 39,907 1.91
(0.76) -- (0.09) 9.07 7.26 10,078 1.91
(0.87) -- (0.09) 9.08 8.49 257,498 0.76
(0.83) -- (0.09) 9.08 7.95 280 1.26
- ------------------------------------------------------------------------------
(0.78) -- (0.81) 9.16 (0.70) 401,626 1.09
(0.70) -- (0.81) 9.16 (1.43) 29,256 1.84
(0.70) -- (0.81) 9.16 (1.43) 8,532 1.84
(0.81) -- (0.80) 9.17 (0.32) 97,547 0.84
(0.76) -- (0.80) 9.17 (0.79) 447 1.34
- ------------------------------------------------------------------------------
(0.17) (0.01) (0.03) 9.97 1.50d 325,911 0.95c
(0.15) (0.01) (0.03) 9.97 1.31d 10,308 1.70c
(0.14) (0.01) -- 9.97 1.46d 1,791 1.70c
(0.18) (0.01) (0.03) 9.97 1.58d 2 0.70c
(0.17) (0.01) (0.03) 9.97 1.46d 2 1.20c
- ------------------------------------------------------------------------------
</TABLE>
109
<PAGE>
HIGH YIELD FUND (continued)
<TABLE>
<CAPTION>
Ratios assuming
no expense limitations
-------------------------
Ratio of Ratio of
net investment Ratio of net investment
income expenses income Portfolio
to average to average to average turnover
net assets net assets net assets rate
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
For the Years Ended October
31,
1999 - Class A Shares 9.06% 1.22% 9.00% 59.04%
1999 - Class B Shares 8.30 1.97 8.24 59.04
1999 - Class C Shares 8.26 1.97 8.20 59.04
1999 - Institutional Shares 9.50 0.82 9.44 59.04
1999 - Service Shares 8.92 1.32 8.86 59.04
- -------------------------------------------------------------------------------
1998 - Class A Shares 8.25 1.36 7.98 113.44
1998 - Class B Shares 7.61 1.88 7.57 113.44
1998 - Class C Shares 7.61 1.88 7.57 113.44
1998 - Institutional Shares 9.47 0.88 9.43 113.44
1998 - Service Shares 9.17 1.38 9.13 113.44
- -------------------------------------------------------------------------------
For the Period Ended
October 31,
1997 - Class A Shares
(commenced August 1) 7.06c 1.57c 6.44c 44.80d
1997 - Class B Shares
(commenced August 1) 6.28c 2.07c 5.91c 44.80d
1997 - Class C Shares
(commenced August 15) 6.17c 2.07c 5.80c 44.80d
1997 - Institutional Shares
(commenced August 1) 7.16c 1.07c 6.79c 44.80d
1997 - Service Shares
(commenced August 1) 6.69c 1.57c 6.32c 44.80d
- -------------------------------------------------------------------------------
</TABLE>
(a) Includes the balancing effect of calculating per share amounts.
(b) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all distributions, a complete redemption of the investment
at the net asset value at the end of period and no sales charge. Total
return would be reduced if a sales or redemption charge was taken into
account.
(c) Annualized.
(d) Not annualized.
(e) Calculated based on the average shares outstanding methodology.
110
<PAGE>
[This page intentionally left blank]
111
<PAGE>
Index
<TABLE>
<C> <C> <S>
1 General Investment Management Approach
3 Fund Investment Objectives and Strategies
3 Goldman Sachs Adjustable Rate Government Fund
4 Goldman Sachs Short Duration Government Fund
5 Goldman Sachs Short Duration Tax-Free Fund
6 Goldman Sachs Government Income Fund
7 Goldman Sachs Municipal Income Fund
8 Goldman Sachs Core Fixed Income Fund
9 Goldman Sachs Global Income Fund
11 Goldman Sachs High Yield Municipal Fund
13 Goldman Sachs High Yield Fund
</TABLE>
<TABLE>
<C> <C> <S>
16 Other Investment
Practices and Securities
20 Principal Risks of the
Fund
25 Fund Performance
34 Fund Fees and Expenses
38 Service Providers
45 Dividends
47 Shareholder Guide
47 How to Buy Shares
51 How to Sell Shares
56 Taxation
59 Appendix A
Additional Information on
Portfolio Risks,
Securities and Techniques
80 Appendix B
Financial Highlights
</TABLE>
<PAGE>
Fixed Income Funds
Prospectus (Institutional Shares)
FOR MORE INFORMATION
Annual/Semi-annual Report
Additional information about the Funds' investments is available in the
Funds' annual and semi-annual reports to shareholders. In the Funds' annual
reports, you will find a discussion of the market conditions and investment
strategies that significantly affected the Funds' performance during the
last fiscal year.
Statement of Additional Information
Additional information about the Funds and their policies is also available
in the Funds' Additional Statement. The Additional Statement is incorporated
by reference into this Prospectus (is legally considered part of this
Prospectus).
The Funds' annual and semi-annual reports, and the Additional Statement, are
available free upon request by calling Goldman Sachs at 1-800-621-2550.
To obtain other information and for shareholder inquiries:
By telephone - Call 1-800-621-2550
By mail - Goldman, Sachs & Co., 4900 Sears Tower, Chicago, Illinois
60606-6372
By e-mail - [email protected]
On the Internet - Text-only versions of the Funds' documents are located
online and may be downloaded from:
SEC EDGAR database - http://www.sec.gov
You may review and obtain copies of Fund documents by visiting the SEC's
Public Reference Room in Washington, D.C. You may also obtain copies of Fund
documents, after paying a duplicating fee, by writing to the SEC's Public
Reference Section, Washington, D.C. 20549-0102 or by electronic request to:
[email protected]. Information on the operation of the public reference
room may be obtained by calling the SEC at (202) 942-8090.
[LOGO OF GOLDMAN SACHS]
The Funds' investment company registration number is 811-5349.
505630
FIPROINST
<PAGE>
GOLDMAN SACHS FIXED INCOME FUNDS
Prospectus
Service
Shares
March 1, 2000
..Goldman Sachs
Adjustable Rate
Government Fund
..Goldman Sachs
Short Duration
Government Fund
..Goldman Sachs
Short Duration
Tax-Free Fund
..Goldman Sachs
Government Income Fund
..Goldman Sachs
Municipal
Income Fund
..Goldman Sachs Core
Fixed Income Fund
..Goldman Sachs
Global Income Fund
..Goldman Sachs
High Yield Municipal Fund
..Goldman Sachs
High Yield Fund
THE SECURITIES AND EXCHANGE COMMISSION HAS
NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
AN INVESTMENT IN A FUND IS NOT A BANK
DEPOSIT AND IS NOT INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENT AGENCY. AN INVESTMENT IN A FUND
INVOLVES INVESTMENT RISKS, INCLUDING POSSI-
BLE LOSS OF PRINCIPAL.
[LOGO OF GOLDMAN SACHS]
<PAGE>
NOT FDIC-INSURED May Lose Value No Bank Guarantee
<PAGE>
General Investment Management Approach
Goldman Sachs Asset Management, a unit of the Investment Management Division
of Goldman, Sachs & Co. ("Goldman Sachs"), serves as investment adviser to
the Short Duration Tax-Free, Government Income, Municipal Income, Core Fixed
Income, High Yield Municipal and High Yield Funds. Goldman Sachs Funds Man-
agement, L.P. serves as investment adviser to the Adjustable Rate Government
and Short Duration Government Funds. Goldman Sachs Asset Management Interna-
tional serves as investment adviser to the Global Income Fund. Goldman Sachs
Asset Management, Goldman Sachs Funds Management, L.P., and Goldman Sachs
Asset Management International are each referred to in this Prospectus as
the "Investment Adviser."
Goldman Sachs' Fixed Income Investing Philosophy:
Active Management Within a Risk-Managed Framework
The Investment Adviser employs a disciplined, multi-step process to evaluate
potential investments:
1. Sector Allocation--The Investment Adviser assesses the relative value of
different investment sectors (such as U.S. corporate, asset-backed and mort-
gage-backed securities) to create investment strategies that meet each
Fund's objectives.
2. Security Selection--In selecting securities for each Fund, the Investment
Adviser draws on the extensive resources of Goldman Sachs, including fixed-
income research professionals.
3. Yield Curve Strategies--The Investment Adviser adjusts the term structure
of the Funds based on its expectations of changes in the shape of the yield
curve while closely controlling the overall duration of the Fund.
The Investment Adviser de-emphasizes interest rate predictions as a means of
generating incremental return. Instead, the Investment Adviser seeks to add
value through the selection of particular securities and investment sector
allocation as described above.
With every fixed-income portfolio, the Investment Adviser applies a team
approach that emphasizes risk management and capitalizes on Goldman Sachs'
extensive research capabilities.
- --------------------------------------------------------------------------------
1
<PAGE>
Each of the Funds described in this Prospectus has a target duration. A
Fund's duration approximates its price sensitivity to changes in interest
rates. Maturity measures the time until final payment is due; it takes no
account of the pattern of a security's cash flows over time. In computing
portfolio duration, a Fund will estimate the duration of obligations that
are subject to prepayment or redemption by the issuer, taking into account
the influence of interest rates on prepayments and coupon flows. This method
of computing duration is known as "option-adjusted" duration. A Fund will
not be limited as to its maximum weighted average portfolio maturity or the
maximum stated maturity with respect to individual securities unless other-
wise noted.
Each Fund also has credit rating requirements for the securities it buys. A
Fund will deem a security to have met its minimum credit rating requirement
if the security has the required rating at the time of purchase from at
least one nationally recognized statistical rating organization ("NRSRO")
even though it has been rated below the minimum rating by one or more other
NRSROs. Unrated securities may be purchased by the Funds if they are deter-
mined by the Investment Adviser to be of comparable quality. If a security
satisfies a Fund's minimum rating requirement at the time of purchase and is
subsequently downgraded below such rating, the Fund will not be required to
dispose of such security. This is so even if the downgrade causes the aver-
age credit quality of the Fund to be lower than that stated in the Prospec-
tus. Furthermore, during this period, the Investment Adviser will only buy
securities at or above the Fund's average rating requirement. If a downgrade
occurs, the Investment Adviser will consider what action, including the sale
of such security, is in the best interests of a Fund and its shareholders.
2
<PAGE>
Fund Investment Objectives and Strategies
Goldman Sachs Adjustable Rate Government Fund
FUND FACTS
- --------------------------------------------------------------------------------
Duration (under Target = Six-Month to One-Year U.S. Treasury Security
normal interest Maximum = 2 years
rate conditions):
Expected Approxi- 9-month U.S. Treasury bill
mate Interest
Rate Sensitivity:
Credit Quality: U.S. Government Securities and repurchase agreements col-
lateralized by such securities
Benchmarks: Six-Month and One-Year U.S. Treasury Security
INVESTMENT OBJECTIVE
The Fund seeks to provide a high level of current income, consistent with
low volatility of principal.
PRINCIPAL INVESTMENT STRATEGIES
The Fund invests, under normal circumstances, at least 65% of its total
assets in securities issued or guaranteed by the U.S. government, its agen-
cies, instrumentalities or sponsored enterprises ("U.S. Government Securi-
ties") that are adjustable rate mortgage pass-through securities and other
mortgage securities with periodic interest rate resets. The remainder of the
Fund's assets (up to 35%) may be invested in other U.S. Government Securi-
ties, including:
..Fixed rate mortgage pass-through securities
..Other securities representing an interest in or collateralized by adjust-
able rate and fixed rate mortgage loans ("Mortgage-Backed Securities")
..Repurchase agreements collateralized by U.S. Government Securities
Substantially all of the Fund's assets will be invested in U.S. Government
Securities. 100% of the Fund's portfolio will be invested in U.S. dollar-
denominated securities.
3
<PAGE>
Goldman Sachs Short Duration Government Fund
FUND FACTS
- --------------------------------------------------------------------------------
Duration (under Target = Two-Year U.S. Treasury Security plus or minus
normal interest 0.5 years
rate conditions): Maximum = 3 years
Expected Approxi- 2-year U.S. Treasury note
mate Interest Rate
Sensitivity:
Credit Quality: U.S. Government Securities and repurchase agreements
collateralized by such securities
Benchmark: Two-Year U.S. Treasury Security
INVESTMENT OBJECTIVE
The Fund seeks a high level of current income and secondarily, in seeking
current income, may also consider the potential for capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES
The Fund invests, under normal market conditions, at least 65% of its total
assets in U.S. Government Securities and in repurchase agreements collater-
alized by such securities. Substantially all of the Fund's assets will be
invested in U.S. Government Securities. 100% of the Fund's portfolio will be
invested in U.S. dollar-denominated securities.
4
<PAGE>
FUND INVESTMENT OBJECTIVES AND STRATEGIES
Goldman Sachs Short Duration Tax-Free Fund
FUND FACTS
- --------------------------------------------------------------------------------
Duration (under Target = Lehman Brothers Three-Year Municipal Bond Index
normal interest plus or minus 0.5 years
rate conditions): Maximum = 4 years
Expected Approxi- 3-year municipal bond
mate Interest Rate
Sensitivity:
Credit Quality: Minimum = BBB or Baa by a NRSRO at the
time of purchase, or, if unrated, deter-
mined by the Investment Adviser to be of
comparable quality
Benchmark: Lehman Brothers Three-Year Municipal Bond Index
INVESTMENT OBJECTIVE
The Fund seeks a high level of current income, consistent with relatively
low volatility of principal, that is exempt from regular federal income tax.
PRINCIPAL INVESTMENT STRATEGIES
The Fund invests, under normal conditions, at least 80% of its net assets in
fixed-income securities issued by or on behalf of states, territories and
possessions of the United States (including the District of Columbia) and
the political subdivisions, agencies and instrumentalities thereof ("Munici-
pal Securities"), the interest on which is exempt from regular federal
income tax (i.e., excluded from gross income for federal income tax purpos-
es), and is not a tax preference item under the federal alternative minimum
tax. Under normal circumstances, the Fund's investments in private activity
bonds and taxable investments will not exceed, in the aggregate, 20% of the
Fund's net assets. The interest from private activity bonds (including the
Fund's distributions of such interest) may be a preference item for purposes
of the federal alternative minimum tax. 100% of the Fund's portfolio will be
invested in U.S. dollar-denominated securities.
5
<PAGE>
Goldman Sachs Government Income Fund
FUND FACTS
- --------------------------------------------------------------------------------
Duration (under Target = Lehman Brothers Mutual Fund Government/Mortgage
normal interest Index plus or minus 1 year
rate conditions): Maximum = 6 years
Expected Approxi- 5-year U.S. Treasury note
mate Interest Rate
Sensitivity:
Credit Quality: U.S. Government Securities; non-U.S. Government Securi-
ties rated AAA or Aaa by a NRSRO at the time of purchase
or, if unrated, determined by the Investment Adviser to
be of comparable quality
Benchmark: Lehman Brothers Mutual Fund Government/Mortgage Index
INVESTMENT OBJECTIVE
The Fund seeks a high level of current income, consistent with safety of
principal.
PRINCIPAL INVESTMENT STRATEGIES
The Fund invests, under normal circumstances, at least 65% of its total
assets in U.S. Government Securities and in repurchase agreements collater-
alized by such securities. The remainder of the Fund's assets may be
invested in non-government securities such as privately issued Mortgage-
Backed Securities, asset-backed securities and corporate securities. 100% of
the Fund's portfolio will be invested in U.S. dollar-denominated securities.
6
<PAGE>
FUND INVESTMENT OBJECTIVES AND STRATEGIES
Goldman Sachs Municipal Income Fund
FUND FACTS
- --------------------------------------------------------------------------------
Duration (under Target = Lehman Brothers 15-Year Municipal Bond Index
normal interest plus or minus one year
rate conditions): Maximum = 12 years
Expected Approxi- 15-year municipal bond
mate Interest Rate
Sensitivity:
Credit Quality:
Minimum = BBB/Baa at the time of purchase; Weighted
Average = AA or Aa
Securities will either be rated by a NRSRO or, if
unrated, determined by the Investment Adviser to be of
comparable quality
Benchmark: Lehman Brothers 15-Year Municipal Bond Index
INVESTMENT OBJECTIVE
The Fund seeks a high level of current income that is exempt from regular
federal income tax, consistent with preservation of capital.
PRINCIPAL INVESTMENT STRATEGIES
The Fund invests, under normal circumstances, at least 80% of its net assets
in Municipal Securities, the interest on which is exempt from regular fed-
eral income tax (i.e., excluded from gross income for federal income tax
purposes). The Fund may invest up to 100% of its net assets in private
activity bonds, the interest from which (including the Fund's distributions
of such interest) may be a preference item for purposes of the federal
alternative minimum tax. 100% of the Fund's portfolio will be invested in
U.S. dollar-denominated securities.
7
<PAGE>
Goldman Sachs Core Fixed Income Fund
FUND FACTS
- --------------------------------------------------------------------------------
Duration (under Target = Lehman Brothers Aggregate Bond Index plus or
normal interest minus one year
rate conditions): Maximum = 6 years
Expected Approxi- 5-year U.S. Treasury note
mate Interest Rate
Sensitivity:
Credit Quality: Minimum = BBB or Baa; Minimum for non-U.S. dollar denom-
inated securities = AA or Aa
Securities will either be rated by a NRSRO or, if
unrated, determined by the Investment Adviser to be of
comparable quality
Benchmark: Lehman Brothers Aggregate Bond Index
INVESTMENT OBJECTIVE
The Fund seeks a total return consisting of capital appreciation and income
that exceeds the total return of the Lehman Brothers Aggregate Bond Index
(the "Index").
PRINCIPAL INVESTMENT STRATEGIES
The Fund invests, under normal circumstances, at least 65% of its total
assets in fixed-income securities, including U.S. Government Securities,
corporate debt securities, Mortgage-Backed Securities and asset-backed secu-
rities. The Fund may also invest in custodial receipts, Municipal Securities
and convertible securities. The Fund's investments in non-U.S. dollar denom-
inated obligations will not exceed 25% of its total assets at the time of
investment, of which 10% may be invested in obligations of issuers in coun-
tries with emerging markets or economies ("emerging countries"). In pursuing
its investment objective, the Fund uses the Index as its performance bench-
mark, but the Fund will not attempt to replicate the Index. The Fund may,
therefore, invest in securities that are not included in the Index.
8
<PAGE>
FUND INVESTMENT OBJECTIVES AND STRATEGIES
Goldman Sachs Global
Income Fund
FUND FACTS
- --------------------------------------------------------------------------------
Duration (under Target = J.P. Morgan Global Government Bond Index
normal interest (hedged) plus or minus 2.5 years
rate conditions): Maximum = 7.5 years
Expected Approxi- 6-year government bond
mate Interest Rate
Sensitivity:
Credit Quality: Minimum = BBB or Baa at time of purchase; at least 50%
of total assets = AAA or Aaa
Securities will either be rated by a NRSRO or, if
unrated, determined by the Investment Adviser to be of
comparable quality
Benchmark: J.P. Morgan Global Government Bond Index (hedged)
INVESTMENT OBJECTIVE
The Fund seeks a high total return, emphasizing current income, and, to a
lesser extent, providing opportunities for capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES
The Fund invests primarily in a portfolio of high quality fixed-income secu-
rities of U.S. and foreign issuers and enters into transactions in foreign
currencies. Under normal market conditions, the Fund will:
..Have at least 30% of its total assets, after considering the effect of cur-
rency positions, denominated in U.S. dollars
..Invest in securities of issuers in at least three countries
..Seek to meet its investment objective by pursuing investment opportunities
in foreign and domestic fixed-income securities markets and by engaging in
currency transactions to seek to enhance returns and to seek to hedge its
portfolio against currency exchange rate fluctuations
The Fund may invest more than 25% of its total assets in the securities of
corporate and governmental issuers located in each of Canada, Germany, Japan
and the United Kingdom as well as in the securities of U.S. issuers. Not
more than 25% of the Fund's total assets will be invested in securities of
issuers in any other
9
<PAGE>
Goldman Sachs Global Income Fund continued
single foreign country. The Fund may also invest up to 10% of its total
assets in issuers in emerging countries.
The fixed-income securities in which the Fund may invest include:
..U.S. Government Securities and custodial receipts therefor
..Securities issued or guaranteed by a foreign government or any of its
political subdivisions, authorities, agencies, instrumentalities or by
supranational entities
..Corporate debt securities
..Certificates of deposit and bankers' acceptances issued or guaranteed by,
or time deposits maintained at, U.S. or foreign banks (and their branches
wherever located) having total assets of more than $1 billion
..Commercial paper
..Mortgage-Backed Securities and asset-backed securities
The Global Income Fund is "non-diversified" under the Investment Company Act
of 1940 (the "Act"), and may invest more of its assets in fewer issuers than
"diversified" mutual funds. Therefore, the Global Income Fund may be more
susceptible to adverse developments affecting any single issuer held in its
portfolio, and may be more susceptible to greater losses because of these
developments.
10
<PAGE>
FUND INVESTMENT OBJECTIVES AND STRATEGIES
Goldman Sachs High Yield Municipal Fund
FUND FACTS
- --------------------------------------------------------------------------------
Duration (under Target = Lehman Brothers Municipal Bond Index plus or
normal interest minus 2 years
rate conditions): Maximum = 12 years
Expected Approxi- 15-20-year municipal bond
mate Interest Rate
Sensitivity:
Credit Quality:
At least 65% of total assets = BB or Ba or lower at the
time of investment or, if unrated, determined by the
Investment Adviser to be of comparable quality
Benchmarks: Lehman Brothers Municipal Bond Index and Lehman Brothers
High Yield Municipal Bond Index
INVESTMENT OBJECTIVE
The Fund seeks a high level of current income that is exempt from regular
federal income tax and may also consider the potential for capital apprecia-
tion.
PRINCIPAL INVESTMENT STRATEGIES
The Fund invests, under normal circumstances, at least 65% of its total
assets in high-yield Municipal Securities that, at the time of investment,
are non-investment grade securities. Non-investment grade securities are
securities rated BB, Ba or below by a NRSRO, or, if unrated, determined by
the Investment Adviser to be of comparable quality. Moreover, under normal
circumstances, the Fund may invest up to 35% of its total assets in invest-
ment grade fixed-income securities.
In pursuing its principal investment strategy, the Investment Adviser will
assess the relative value in the Municipal Securities market from both a
credit and yield curve perspective. Tax-exempt securities offering the high
current income sought by the Fund are ordinarily in the medium and lower
rating categories of NRSROs (BB/Ba or lower).
Under normal circumstances, the Fund invests at least 80% of its net assets
in Municipal Securities, the interest on which is exempt from regular fed-
eral income tax (i.e., excluded from gross income for federal income tax
purposes).
11
<PAGE>
Goldman Sachs High Yield Municipal Fund continued
The Fund may invest up to 100% of its net assets in private activity bonds,
the interest from which (including the Fund's distributions of such inter-
est) may be a preference item for purposes of the federal alternative mini-
mum tax. 100% of the Fund's portfolio will be invested in U.S. dollar-
denominated securities.
Recognizing that the high-yield municipal market may consist of a limited
number of attractive investment opportunities at any one time, the Invest-
ment Adviser may temporarily close the Fund to new investors in circum-
stances where it believes that a sufficient quantity of appropriate high-
yield Municipal Securities are not available in the market place. This
determination will not preclude existing shareholders from purchasing or
redeeming Fund shares.
The High Yield Municipal Fund is "non-diversified" under the Act, and may
invest more of its assets in fewer issuers than "diversified" mutual funds.
Therefore, the High Yield Municipal Fund may be more susceptible to adverse
developments affecting any single issuer held in its portfolio, and may be
more susceptible to greater losses because of these developments.
Non-investment grade fixed-income securities (commonly known as "junk
bonds") tend to offer higher yields than higher rated securities with simi-
lar maturities. Non-investment grade fixed-income securities are, however,
considered speculative and generally involve greater price volatility and
greater risk of loss of principal and interest than higher rated securities.
The Fund may purchase the securities of issuers that are in default.
12
<PAGE>
FUND INVESTMENT OBJECTIVES AND STRATEGIES
Goldman Sachs
High Yield Fund
FUND FACTS
- --------------------------------------------------------------------------------
Duration (under Target = Lehman Brothers High Yield Bond Index plus or
normal interest minus 2.5 years
rate conditions): Maximum = 7.5 years
Expected Approxi- 6-year U.S. Treasury note
mate Interest Rate
Sensitivity:
Credit Quality: At least 65% of total assets = BB or Ba or lower at the
time of investment or, if unrated, determined by the
Investment Adviser to be of comparable quality.
Benchmark:
Lehman Brothers U.S. Corporate High Yield Bond Index
INVESTMENT OBJECTIVE
The Fund seeks a high level of current income and may also consider the
potential for capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES
The Fund invests, under normal circumstances, at least 65% of its total
assets in high yield, fixed-income securities that, at the time of invest-
ment, are non-investment grade securities. Non-investment grade securities
are securities rated BB, Ba or below by a NRSRO, or, if unrated, determined
by the Investment Adviser to be of comparable quality. The Fund may invest
in all types of fixed-income securities, including:
..Senior and subordinated corporate debt obligations (such as bonds, deben-
tures, notes and commercial paper)
..Convertible and non-convertible corporate debt obligations
..Loan participations
..Custodial receipts
..Municipal Securities
..Preferred stock
The Fund may invest up to 25% of its total assets in obligations of domestic
and foreign issuers which are denominated in currencies other than the U.S.
dollar and in securities of issuers located in emerging countries
denominated in any currency.
13
<PAGE>
Goldman Sachs High Yield Fund continued
Under normal market conditions, the Fund may invest up to 35% of its total
assets in investment grade fixed-income securities, including U.S. Govern-
ment Securities. The Fund may also invest in common stocks, warrants, rights
and other equity securities, but will generally hold such equity investments
only when debt or preferred stock of the issuer of such equity securities is
held by the Fund.
Non-investment grade fixed-income securities (commonly known as "junk
bonds") tend to offer higher yields than higher rated securities with simi-
lar maturities. Non-investment grade fixed-income securities are, however,
considered speculative and generally involve greater price volatility and
greater risk of loss of principal and interest than higher rated securities.
The Fund may purchase the securities of issuers that are in default.
CREDIT QUALITY
For your information, set forth below is the distribution of ratings for the
portfolio securities (including commercial paper and non-convertible bonds)
held by the Fund on October 31, 1999, the last day of the Fund's fiscal
year.
<TABLE>
<CAPTION>
Percentage of
Fund's assets
---------------------------------------------
<S> <C>
AAA/Aaa 2.3%
AA/Aa 0%
A 0%
BBB/Baa 1.5%
BB/Ba 9.7%
B 79.3%
CCC/Caa 5.6%
Not rated
Comparable to A 0%
Comparable to BBB/Baa 0%
Comparable to BB/Ba or lower 0%
Comparable to CCC 1.6%
---------------------------------------------
100.0%
---------------------------------------------
</TABLE>
14
<PAGE>
[This page intentionally left blank]
15
<PAGE>
Other Investment Practices and Securities
The table below identifies some of the investment techniques that may (but are
not required to) be used by the Funds in seeking to achieve their investment
objectives. The table also highlights the differences among the Funds in their
use of these techniques and other investment practices and investment securi-
ties. Numbers in this table show allowable usage only; for actual usage, con-
sult the Funds' annual and semi-annual reports. For more information see Appen-
dix A.
10 Percent of total assets (italic type)
10 Percent of net assets (roman type)
.. No specific percentage limitation on usage; limited only by the objectives
and strategies of the Fund
<TABLE>
<CAPTION>
Adjustable Short Short
Rate Duration Duration Government
Government Government Tax-Free Income
Fund Fund Fund Fund
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Practices
Borrowings 33 1/3 33 1/3 33 1/3 33 1/3
Credit and Interest Rate Swaps* . . . .
Currency Options and Futures -- -- -- --
Cross Hedging of Currencies -- -- -- --
Currency Swaps* -- -- -- --
Financial Futures Contracts . . . .
Forward Foreign Currency Exchange
Contracts -- -- -- --
Interest Rate Floors, Caps and
Collars . . . .
Mortgage Dollar Rolls . . -- .
Mortgage Swaps* . . -- .
Options (including Options on
Futures) . . . .
Options on Foreign Currencies -- -- -- --
Repurchase Agreements . . . .
Securities Lending 33 1/3 33 1/3 33 1/3 33 1/3
Standby Commitments and Tender
Option Bonds -- -- . --
When-Issued Securities and Forward
Committments . . . .
- -----------------------------------------------------------------------------
</TABLE>
- --Not permitted
* Limited to 15% of net assets (together with other illiquid securities) for
all structured securities which are not deemed to be liquid and all swap
transactions.
** These Funds may enter into repurchase agreements collateralized by securi-
ties issued by foreign governments.
16
<PAGE>
OTHER INVESTMENT PRACTICES AND SECURITIES
<TABLE>
<CAPTION>
Municipal Core Fixed Global High Yield
Income Income Income Municipal High Yield
Fund Fund Fund Fund Fund
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
33 1/3 33 1/3 33 1/3 33 1/3 33 1/3
. . . . .
-- . . -- .
-- . . -- .
-- . . -- .
. . . . .
-- . . -- .
. . . . .
-- . . -- --
-- . . -- .
. . . . .
-- . . -- .
. .** .** . .**
33 1/3 33 1/3 33 1/3 33 1/3 33 1/3
. -- -- . --
. . . . .
- --------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE>
10 Percent of total assets (italic type)
10 Percent of net assets (roman type)
.. No specific percentage limitation on usage; limited only by the objectives
and strategies of the Fund
- -- Not permitted
<TABLE>
<CAPTION>
Adjustable Short Short
Rate Duration Duration Government
Government Government Tax-Free Income
Fund Fund Fund Fund
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Securities
Asset-Backed Securities ./1/ ./1/ . .
Bank Obligations -- -- -- .
Convertible Securities -- -- . --
Corporate Debt Obligations and Trust
Preferred Securities -- -- . .
Emerging Country Securities -- -- -- --
Foreign Securities/2/ -- -- -- --
Loan Participations -- -- -- --
Mortgage-Backed Securities
Adjustable Rate Mortgage Loans . . -- .
Collateralized Mortgage Obligations . . -- .
Multiple Class Mortgage-Backed
Securities . . -- .
Privately Issued Mortgage-Backed
Securities -- -- -- .
Stripped Mortgage-Backed Securities . . -- .
Non-Investment Grade Fixed
Income Securities -- -- -- --
Preferred Stock, Warrants and Rights -- -- -- --
Structured Securities* . . . .
Taxable Municipal Securities -- -- . --
Tax-Free Municipal Securities -- -- 80+ .
Temporary Investments . . ./5/ .
U.S. Government Securities . . . .
- -------------------------------------------------------------------------------
</TABLE>
* Limited to 15% of net assets (together with other illiquid securities) for
all structured securities which are not deemed to be liquid and all swap
transactions.
1 Adjustable Rate Government and Short Duration Government Funds may only
invest in asset-backed securities that are issued or guaranteed by U.S.
government agencies, instrumentalities or sponsored enterprises.
2 Includes issuers domiciled in one country and issuing securities denomi-
nated in the currency of another.
3 Of the Funds' investments in foreign securities, 10% of each Fund's total
assets in the aggregate may be invested in emerging country securities.
4 High Yield Municipal and High Yield Funds may invest up to 35% of their
respective total assets in investment grade securities under normal condi-
tions.
5 Short-Duration Tax-Free, Municipal Income and High Yield Municipal Funds
may invest no more than 20% of their net assets in taxable investments
under normal conditions.
18
<PAGE>
OTHER INVESTMENT PRACTICES AND SECURITIES
<TABLE>
<CAPTION>
Municipal Core Fixed Global High Yield
Income Income Income Municipal High Yield
Fund Fund Fund Fund Fund
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
. . . . .
-- . . -- .
. . -- . .
. . . . .
-- 10/3/ 10/3/ -- 25/7/
-- 25 25 -- ./7/
-- -- -- -- .
-- . . -- .
-- . . -- .
-- . . -- .
-- . . -- .
-- . . -- .
-- -- -- 65+/4/ 65+/4/
-- -- -- -- .
. . . . .
20 . -- 20 .
80+ . -- 80+ .
./5/ . . ./5/,/6/ ./6/
. . . . .
- ----------------------------------------------------------------------------------------------
</TABLE>
6 High Yield Municipal and High Yield Funds may for this purpose invest in
investment grade securities without limit.
7 The High Yield Fund may invest up to 25% of its total assets in securities
not denominated in U.S. dollars and in emerging country securities denomi-
nated in any currency.
19
<PAGE>
Principal Risks of the Funds
Loss of money is a risk of investing in each Fund. An investment in a Fund is
not a deposit of any bank and is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other governmental agency. The following
summarizes important risks that apply to the Funds and may result in a loss of
your investment. None of the Funds should be relied upon as a complete invest-
ment program. There can be no assurance that a Fund will achieve its investment
objective.
<TABLE>
<CAPTION>
..Applicable
- --Not Applicable
Adjustable Short- Short-
Rate Duration Duration Government
Government Government Tax-Free Income
Fund Fund Fund Fund
- ---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest Rate . . . .
Credit/Default . . . .
Call . . . .
Extension . . . .
Derivatives . . . .
U.S. Government Securities . . . .
Market . . . .
Management . . . .
Liquidity . . . .
Non-Diversification -- -- -- --
Foreign -- -- -- --
Emerging Countries -- -- -- --
Junk Bond -- -- -- --
Tax -- -- . --
- ---------------------------------------------------------------------
</TABLE>
20
<PAGE>
PRINCIPAL RISKS OF THE FUNDS
<TABLE>
<CAPTION>
Municipal Core Fixed Global High Yield
Income Income Income Municipal High Yield
Fund Fund Fund Fund Fund
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
. . . . .
. . . . .
. . . . .
. . . . .
. . . . .
. . . . .
. . . . .
. . . . .
. . . . .
-- -- . . --
-- . . -- .
-- . . -- .
-- -- -- . .
. -- -- . --
- --------------------------------------------------------------------------------------------
</TABLE>
21
<PAGE>
All Funds:
..Interest Rate Risk--The risk that when interest rates increase, fixed-income
securities held by a Fund will decline in value. Long-term fixed-income
securities will normally have more price volatility because of this risk than
short-term securities.
..Credit/Default Risk--The risk that an issuer or guarantor of fixed-income
securities held by a Fund (which may have low credit ratings) may default on
its obligation to pay interest and repay principal. With respect to the Short
Duration Tax-Free, Municipal Income and High Yield Municipal Funds, risk of
loss from payment default may exist where Municipal Securities are backed by
foreign letters of credit or guarantees.
..Call Risk--The risk that an issuer will exercise its right to pay principal on
an obligation held by a Fund (such as a Mortgage-Backed Security) earlier than
expected. This may happen when there is a decline in interest rates. Under
these circumstances, a Fund may be unable to recoup all of its initial
investment and will also suffer from having to reinvest in lower yielding
securities.
..Extension Risk--The risk that an issuer will exercise its right to pay
principal on an obligation held by a Fund (such as a Mortgage-Backed Security)
later than expected. This may happen when there is a rise in interest rates.
Under these circumstances, the value of the obligation will decrease, and a
Fund will also suffer from the inability to invest in higher yielding
securities.
..Derivatives Risk--The risk that loss may result from a Fund's investments in
options, futures, swaps, structured securities and other derivative
investments. These instruments may be leveraged so that small changes may
produce disproportionate losses to a Fund.
..U.S. Government Securities Risk--The risk that the U.S. government will not
provide financial support to U.S. government agencies, instrumentalities or
sponsored enterprises if it is not obligated to do so by law.
..Market Risk--The risk that the value of the securities in which a Fund invests
may go up or down in response to the prospects of individual companies and/or
general economic conditions. Price changes may be temporary or last for
extended periods.
..Management Risk--The risk that a strategy used by the Investment Adviser may
fail to produce the intended results.
..Liquidity Risk--The risk that a Fund will not be able to pay redemption
proceeds within the time period stated in this Prospectus because of unusual
market conditions, an unusually high volume of redemption requests, or other
reasons. Funds that invest in non-investment grade fixed income securities or
emerging country issuers will be especially subject to the risk that during
certain periods the liquidity of particular issuers or industries, or all
securities within these investment
22
<PAGE>
PRINCIPAL RISKS OF THE FUNDS
categories, will shrink or disappear suddenly and without warning as a result
of adverse economic, market or political events, or adverse investor
perceptions whether or not accurate. The Goldman Sachs Asset Allocation
Portfolios (the "Asset Allocation Portfolios") expect to invest a significant
percentage of their assets in the Funds and other funds for which Goldman
Sachs now or in the future acts as investment adviser or underwriter.
Redemptions by an Asset Allocation Portfolio of its position in a Fund may
further increase liquidity risk and may impact a Fund's net asset value
("NAV").
Specific Funds:
..Non-Diversification Risk--The Global Income and High Yield Municipal Funds are
non-diversified, meaning that each Fund is permitted to invest more of its
assets in fewer issuers than "diversified" mutual funds. Thus, each Fund may
be more susceptible to adverse developments affecting any single issuer held
in its portfolio, and may be more susceptible to greater losses because of
these developments. In addition, the Global Income Fund may invest more than
25% of its total assets in the securities of corporate and governmental
issuers located in each of Canada, Germany, Japan and the United Kingdom, as
well as in the securities of U.S. issuers. Concentration of the Global Income
Fund's investments in such issuers will subject the Fund, to a greater extent
than if investments were less concentrated, to losses arising from adverse
developments affecting those issuers or countries.
..Foreign Risk--The Core Fixed Income, Global Income and High Yield Funds will
be subject to risks of loss with respect to their foreign investments that are
not typically associated with domestic issuers. Loss may result because of
less foreign government regulation, less public information and less economic,
political and social stability. Loss may also result from the imposition of
exchange controls, confiscations and other government restrictions. The Funds
will also be subject to the risk of negative foreign currency rate fluctua-
tions. Foreign risks will normally be greatest when a Fund invests in issuers
located in emerging countries.
..Emerging Countries Risk--The Core Fixed Income, Global Income and High Yield
Funds may invest in emerging countries. The securities markets of Asian, Latin
American, Eastern European, African and other emerging countries are less liq-
uid, are especially subject to greater price volatility, have smaller market
capitalizations, have less government regulation and are not subject to as
extensive and frequent accounting, financial and other reporting requirements
as the securities markets of more developed countries. These risks are not
normally associated with investments in more developed countries.
23
<PAGE>
.."Junk Bond" Risk--The High Yield Municipal and High Yield Funds will invest in
non-investment grade fixed-income securities (commonly known as "junk bonds")
that are considered predominantly speculative by traditional investment
standards. Non-investment grade fixed-income securities and unrated securities
of comparable credit quality are subject to the increased risk of an issuer's
inability to meet principal and interest obligations. These securities may be
subject to greater price volatility due to such factors as specific corporate
or municipal developments, interest rate sensitivity, negative perceptions of
the junk bond markets generally and less secondary market liquidity.
..Tax Risk--The Short Duration Tax-Free, Municipal Income and High Yield Munici-
pal Funds may be more adversely impacted by changes in tax rates and policies
than the other Funds. Because interest income from Municipal Securities is
normally not subject to regular federal income taxation, the attractiveness of
Municipal Securities in relation to other investment alternatives is affected
by changes in federal income tax rates applicable to, or the continuing fed-
eral income tax-exempt status of, such interest income. Any proposed or actual
changes in such rates or exempt status, therefore, can significantly affect
the demand for and supply, liquidity and marketability of Municipal Securi-
ties. This could in turn affect a Fund's ability to acquire and dispose of
Municipal Securities at desirable yield and price levels. Additionally, these
Funds would not be a suitable investment for IRAs, other tax-exempt or tax-
deferred accounts or for other investors who are not sensitive to the federal,
state or local income tax consequences of their investments.
More information about the Funds' portfolio securities and investment tech-
niques, and their associated risks, is provided in Appendix A. You should con-
sider the investment risks discussed in this section and in Appendix A. Both
are important to your investment choice.
24
<PAGE>
Fund Performance
HOW THE FUNDS HAVE PERFORMED
The bar chart and table below provide an indication of the risks of invest-
ing in a Fund by showing: (a) changes in the performance of a Fund's Service
Shares from year to year; and (b) how the average annual returns of a Fund's
Service Shares compare to those of broad-based securities market indices.
The bar chart and table assume reinvestment of dividends and distributions.
A Fund's past performance is not necessarily an indication of how the Fund
will perform in the future. Performance reflects expense limitations in
effect. If expense limitations were not in place, a Fund's performance would
have been reduced. The High Yield Municipal Fund as of the date of this Pro-
spectus had less than one calendar year's performance, therefore, no perfor-
mance information is provided in this section.
25
<PAGE>
Adjustable Rate Government Fund
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best Quarter
Q1 '99
1.58%
Worst Quarter
Q4 '98
0.39%
[GRAPH]
1998 1999
- ------ ------
3.54% 4.63%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
For the period ended December 31, 1999 1 Year Since Inception
----------------------------------------------------------------
<S> <C> <C>
Service Shares (Inception 3/27/97) 4.63% 4.59%
Six-Month U.S. Treasury Security* 4.64% 5.26%
One-Year U.S. Treasury Security* 4.03% 5.34%
Lehman Brothers Mutual Fund Short (1-2)
U.S. Government Index** 3.42% 5.65%
----------------------------------------------------------------
</TABLE>
* The Six-Month and One-Year U.S. Treasury Securities, as reported by Merrill
Lynch, do not reflect any fees or expenses.
** The Lehman Brothers Mutual Fund Short (1-2) U.S. Government Index, an
unmanaged index, does not reflect any fees or expenses.
26
<PAGE>
FUND PERFORMANCE
Short Duration Government Fund
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best Quarter
Q3 '98
2.86%
Worst Quarter
Q4 '98
-0.25%
[GRAPH]
1997 1998 1999
------ ------ ------
6.55% 5.22% 2.52%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
For the period ended December 31, 1999 1 Year Since Inception
----------------------------------------------------------------
<S> <C> <C>
Service Shares (Inception 4/10/96) 2.52% 5.20%
Two-Year U.S. Treasury Security* 1.89% 5.27%
Lehman Brothers Mutual Fund Short (1-3)
U.S. Government Index** 2.97% 5.79%
----------------------------------------------------------------
</TABLE>
* The Two-Year U.S. Treasury Security, as reported by Merrill Lynch, does not
reflect any fees or expenses.
** The Lehman Brothers Mutual Fund Short (1-3) U.S. Government Index, an
unmanaged index, does not reflect any fees or expenses.
27
<PAGE>
Short Duration Tax-Free Fund
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best Quarter
Q2 '95
1.78%
Worst Quarter
Q2 '99
-0.69%
[GRAPH]
1995 1996 1997 1998 1999
- ------ ------ ------ ------ ------
6.31% 4.19% 4.74% 4.17% 0.63%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
For the period ended December 31,
1999 1 Year 5 Years Since Inception
---------------------------------------------------------------------
<S> <C> <C> <C>
Service Shares (Inception 9/20/94) 0.63% 3.99% 3.74%
Lehman Brothers Three-Year Municipal
Bond Index* 1.97% 5.17% 4.92%
---------------------------------------------------------------------
</TABLE>
* The Lehman Brothers Three-Year Municipal Bond Index, an unmanaged index,
does not reflect any fees or expenses.
28
<PAGE>
FUND PERFORMANCE
Government Income Fund
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best Quarter
Q3 '98
4.24%
Worst Quarter
Q2 '99
-1.18%
[GRAPH]
1998 1999
- ------ ------
6.85% -0.91%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
For the period ended December 31,
1999 1 Year Since Inception
------------------------------------------------------------
<S> <C> <C>
Service Shares (Inception 8/15/97) (0.91)% 4.21%
Lehman Brothers Mutual Fund
Government/Mortgage Index* (0.54)% 5.26%
------------------------------------------------------------
</TABLE>
* The Lehman Brothers Mutual Fund Government/Mortgage Index, an unmanaged
index, does not reflect any fees or expenses.
29
<PAGE>
Municipal Income Fund
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best Quarter
Q3 '98
2.69%
Worst Quarter
Q2 '99
-2.91%
[GRAPH]
1998 1999
- ------ ------
5.46% -4.99%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
For the period ended December 31,
1999 1 Year Since Inception
------------------------------------------------------------
<S> <C> <C>
Service Shares (Inception 8/15/97) (4.99)% 1.99%
Lehman Brothers 15-Year Municipal
Bond Index* (2.50)% 3.69%
------------------------------------------------------------
</TABLE>
* The Lehman Brothers 15-Year Municipal Bond Index, an unmanaged index, is a
total return performance benchmark for the 15-year maturity, investment-
grade tax-exempt bond market. The Index figures do not reflect any fees or
expenses.
30
<PAGE>
FUND PERFORMANCE
Core Fixed Income Fund
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best Quarter
Q3 '98
4.01%
Worst Quarter
Q2 '99
-1.23%
[GRAPH]
1997 1998 1999
- ------ ------ ------
8.86% 7.42% -1.41%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
For the period ended December 31,
1999 1 Year Since Inception
---------------------------------------------------------------
<S> <C> <C>
Service Shares (Inception 3/13/96) (1.41)% 5.37%
Lehman Brothers Aggregate Bond Index* (0.82)% 6.04%
---------------------------------------------------------------
</TABLE>
* The Lehman Brothers Aggregate Bond Index represents an unmanaged diversi-
fied portfolio of fixed-income securities, including U.S. Treasuries,
investment-grade corporate bonds and mortgage-backed and asset-backed secu-
rities. The Index figures do not reflect any fees or expenses.
31
<PAGE>
Global Income Fund
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best Quarter
Q3 '98
5.52%
Worst Quarter
Q2 '99
-1.79%
[GRAPH]
1998 1999
- ------ ------
10.33% -1.45%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
For the period ended December 31,
1999 1 Year Since Inception
------------------------------------------------------------
<S> <C> <C>
Service Shares (Inception 3/12/97) (1.45)% 6.02%
J.P. Morgan Global Government
Bond Index (hedged)* 0.72% 7.58%
------------------------------------------------------------
</TABLE>
* The J.P. Morgan Global Government Bond Index (hedged), an unmanaged index,
does not reflect any fees or expenses.
32
<PAGE>
FUND PERFORMANCE
High Yield Fund
TOTAL RETURN CALENDAR YEAR
- --------------------------------------------------------------------------------
Best Quarter
Q4 "98
4.99%
Worst Quarter
Q3 "98
-6.63%
[GRAPH]
1998 1999
- ------ ------
2.93% 4.26%
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
For the period ended December 31, 1999 1 Year Since Inception
------------------------------------------------------------------------------
<S> <C> <C>
Service Shares (Inception 8/1/97) 4.26% 4.70%
Lehman Brothers U.S. Corporate High Yield Bond Index* 2.39% 3.30%
------------------------------------------------------------------------------
</TABLE>
* The Lehman Brothers U.S. Corporate High Yield Bond Index is a total return
performance benchmark for fixed-income securities having a maximum quality
rating of Ba1, a minimum amount outstanding of $100 million and at least
one year to maturity. The Index is unmanaged and does not reflect any fees
or expenses.
33
<PAGE>
Fund Fees and Expenses (Service Shares)
This table describes the fees and expenses that you would pay if you buy and
hold Service Shares of a Fund.
<TABLE>
<CAPTION>
Adjustable Short Short
Rate Duration Duration
Government Government Tax-Free
Fund Fund Fund
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Shareholder Fees
(fees paid directly from your investment):
Maximum Sales Charge (Load) Imposed on
Purchases None None None
Maximum Deferred Sales Charge (Load) None None None
Maximum Sales Charge (Load) Imposed on
Reinvested Dividends None None None
Redemption Fees None None None
Exchange Fees None None None
Annual Fund Operating Expenses
(expenses that are deducted from Fund
assets):/1/
Management Fees/2/ 0.40% 0.50% 0.40%
Service Fees/3/ 0.50% 0.50% 0.50%
Other Expenses/4/ 0.13% 0.17% 0.26%
- --------------------------------------------------------------------------
Total Fund Operating Expenses* 1.03% 1.17% 1.16%
- --------------------------------------------------------------------------
</TABLE>
See page 36 for all other footnotes.
* As a result of the current waivers and expense limi-
tations, "Other Expenses" and "Total Fund Operating
Expenses" of the Funds which are actually incurred
are as set forth below. The waivers and expense limi-
tations may be terminated at any time at the option
of the Investment Adviser. If this occurs, "Other
Expenses" and "Total Fund Operating Expenses" may
increase without shareholder approval.
<TABLE>
<CAPTION>
Adjustable Short Short
Rate Duration Duration
Government Government Tax-Free
Fund Fund Fund
----------------------------------------------------------------------------------
<S> <C> <C> <C>
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets):/1/
Management Fees/2/ 0.40% 0.50% 0.35%
Service Fees/3/ 0.50% 0.50% 0.50%
Other Expenses/4/ 0.09% 0.04% 0.04%
----------------------------------------------------------------------------------
Total Fund Operating Expenses (after current
waivers and expense limitations) 0.99% 1.04% 0.89%
----------------------------------------------------------------------------------
</TABLE>
34
<PAGE>
FUND FEES AND EXPENSES
<TABLE>
<CAPTION>
Government Municipal Core Fixed Global High Yield
Income Income Income Income Municipal High Yield
Fund Fund Fund Fund Fund Fund
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
None None None None None None
None None None None None None
None None None None None None
None None None None None None
None None None None None None
0.65% 0.55% 0.40% 0.90% 0.55% 0.70%
0.50% 0.50% 0.50% 0.50% 0.50% 0.50%
0.28% 0.19% 0.18% 0.17% 0.44% 0.12%
- ----------------------------------------------------------------------------------------
1.43% 1.24% 1.08% 1.57% 1.49% 1.32%
- ----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Government Municipal Core Fixed Global High Yield
Income Income Income Income Municipal High Yield
Fund Fund Fund Fund Fund Fund
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
0.54% 0.50% 0.40% 0.65% 0.55% 0.70%
0.50% 0.50% 0.50% 0.50% 0.50% 0.50%
0.04% 0.04% 0.14% 0.04% 0.04% 0.06%
- ----------------------------------------------------------------------------------
1.08% 1.04% 1.04% 1.19% 1.09% 1.26%
- ----------------------------------------------------------------------------------
</TABLE>
35
<PAGE>
/1/The Funds' annual operating expenses are based on actual expenses, except
for the High Yield Municipal Fund which are based on estimated amounts for the
current fiscal year.
/2/The Investment Adviser has voluntarily agreed not to impose a portion of the
management fee on the Short Duration Tax-Free, Government Income, Municipal
Income and Global Income Funds equal to 0.05%, 0.11%, 0.05% and 0.25%, respec-
tively of such Funds' average daily net assets. As a result of fee waivers, the
current management fees of the Short Duration Tax-Free, Government Income,
Municipal Income and Global Income Funds are 0.35%, 0.54%, 0.50% and 0.65%,
respectively, of such Funds' average daily net assets. The waivers may be ter-
minated at any time at the option of the Investment Adviser.
/3/Service Organizations may charge other fees to their customers who are bene-
ficial owners of Service Shares in connection with their customers' accounts.
Such fees may affect the return customers realize with respect to their invest-
ments.
/4/"Other Expenses" include transfer agency fees equal to 0.04% of the average
daily net assets of each Fund's Service Shares, plus all other ordinary
expenses not detailed above. The Investment Adviser has voluntarily agreed to
reduce or limit "Other Expenses" of each Fund (excluding management fees,
transfer agency fees, service fees, taxes, interest and brokerage fees and lit-
igation, indemnification and other extraordinary expenses) to the following
percentages of each Fund's average daily net assets:
<TABLE>
<CAPTION>
Other
Fund Expenses
- --------------------------------------
<S> <C>
Adjustable Rate Government 0.05%
Short Duration Government 0.00%
Short Duration Tax-Free 0.00%
Government Income 0.00%
Municipal Income 0.00%
Core Fixed Income 0.10%
Global Income 0.00%
High Yield Municipal 0.00%
High Yield 0.02%
</TABLE>
36
<PAGE>
FUND FEES AND EXPENSES
Example
The following Example is intended to help you compare the cost of investing in
a Fund (without the waivers and expense limitations) with the cost of investing
in other mutual funds. The Example assumes that you invest $10,000 in Service
Shares of a Fund for the time periods indicated and then redeem all of your
shares at the end of those periods. The Example also assumes that your invest-
ment has a 5% return each year and that a Fund's operating expenses remain the
same. Although your actual costs may be higher or lower, based on these assump-
tions your costs would be:
<TABLE>
<CAPTION>
Fund 1 Year 3 Years 5 Years 10 Years
- ------------------------------------------------------------
<S> <C> <C> <C> <C>
Adjustable Rate Government $105 $328 $569 $1,259
- ------------------------------------------------------------
Short Duration Government $119 $372 $644 $1,420
- ------------------------------------------------------------
Short Duration Tax-Free $118 $368 $638 $1,409
- ------------------------------------------------------------
Government Income $146 $452 $782 $1,713
- ------------------------------------------------------------
Municipal Income $126 $393 $681 $1,500
- ------------------------------------------------------------
Core Fixed Income $110 $343 $595 $1,317
- ------------------------------------------------------------
Global Income $160 $496 $855 $1,867
- ------------------------------------------------------------
High Yield Municipal $152 $471 N/A N/A
- ------------------------------------------------------------
High Yield $134 $418 $723 $1,590
- ------------------------------------------------------------
</TABLE>
Service Organizations that invest in Service Shares on behalf of their custom-
ers may charge other fees directly to their customer accounts in connection
with their investments. You should contact your Service Organization for infor-
mation regarding such charges. Such fees, if any, may affect the return such
customers realize with respect to their investments.
Certain Service Organizations that invest in Service Shares may receive other
compensation in connection with the sale and distribution of Service Shares or
for services to their customers' accounts and/or the Funds. For additional
information regarding such compensation, see "Shareholder Guide" in the Pro-
spectus and "Other Information" in the Statement of Additional Information
("Additional Statement").
37
<PAGE>
Service Providers
INVESTMENT ADVISERS
<TABLE>
<CAPTION>
Investment Adviser Fund
------------------------------------------------------
<S> <C>
Goldman Sachs Asset
Management ("GSAM") Short Duration Tax-Free
32 Old Slip Government Income
New York, New York 10005 Municipal Income
Core Fixed Income
High Yield Municipal
High Yield
------------------------------------------------------
Goldman Sachs Funds
Management, L.P.
("GSFM") Adjustable Rate Government
32 Old Slip Short Duration Government
New York, New York 10005
------------------------------------------------------
Goldman Sachs Asset
Management International
("GSAMI") Global Income
133 Peterborough Court
London EC4A 2BB
England
------------------------------------------------------
</TABLE>
As of September 1, 1999, the Investment Management Division ("IMD") was
established as a new operating division of Goldman Sachs. This newly created
entity includes GSAM, GSAMI and GSFM. Goldman Sachs registered as an invest-
ment adviser in 1981. GSAMI, a member of the Investment Management Regula-
tory Organization Limited since 1990 and a registered investment adviser
since 1991, is an affiliate of Goldman Sachs. GSFM, a registered investment
adviser since 1990, is a Delaware limited partnership which is an affiliate
of Goldman Sachs. The Goldman Sachs Group, L.P., which controlled the
Investment Advisers, merged into the Goldman Sachs Group, Inc. as a result
of an initial public offering. As of December 31, 1999, GSAM, GSAMI and
GSFM, along with other units of IMD, had assets under management of $258.5
billion.
The Investment Adviser provides day-to-day advice regarding the Funds' port-
folio transactions. The Investment Adviser makes the investment decisions
for the Funds and places purchase and sale orders for the Funds' portfolio
transactions in U.S. and foreign markets. As permitted by applicable law,
these orders may be directed to any brokers, including Goldman Sachs and its
affiliates. While the Investment Adviser is ultimately responsible for the
management of the Funds, it is able to draw upon the research and expertise
of its asset management affiliates for portfolio decisions and management
with respect to certain portfolio securities. In addition, the Investment
Adviser has access to the research and certain
38
<PAGE>
SERVICE PROVIDERS
proprietary technical models developed by Goldman Sachs, and will apply
quantitative and qualitative analysis in determining the appropriate alloca-
tions among categories of issuers and types of securities.
The Investment Adviser also performs the following additional services for
the Funds:
..Supervises all non-advisory operations of the Funds
..Provides personnel to perform necessary executive, administrative and
clerical services to the Funds
..Arranges for the preparation of all required tax returns, reports to
shareholders, prospectuses and statements of additional information and
other reports filed with the Securities and Exchange Commission (the "SEC")
and other regulatory authorities
..Maintains the records of each Fund
..Provides office space and all necessary office equipment and services
MANAGEMENT FEES
As compensation for its services and its assumption of certain expenses, the
Investment Adviser is entitled to the following fees, computed daily and
payable monthly, at the annual rates listed below (as a percentage of each
respective Fund's average daily net assets):
<TABLE>
<CAPTION>
Actual Rate for the
Fiscal Period Ended
Contractual Rate October 31, 1999
-----------------------------------------------------------------
<S> <C> <C>
GSAM:
-----------------------------------------------------------------
Short Duration Tax-Free 0.40% 0.35%
-----------------------------------------------------------------
Government Income 0.65% 0.54%
-----------------------------------------------------------------
Municipal Income 0.55% 0.50%
-----------------------------------------------------------------
Core Fixed Income 0.40% 0.40%
-----------------------------------------------------------------
High Yield Municipal 0.55% N/A
-----------------------------------------------------------------
High Yield 0.70% 0.70%
-----------------------------------------------------------------
GSFM:
-----------------------------------------------------------------
Adjustable Rate Government 0.40% 0.40%
-----------------------------------------------------------------
Short Duration Government 0.50% 0.50%
-----------------------------------------------------------------
GSAMI:
-----------------------------------------------------------------
Global Income 0.90% 0.65%
-----------------------------------------------------------------
</TABLE>
The difference, if any, between the stated fees and the actual fees paid by
the Funds reflects that the Investment Adviser did not charge the full
amount of the fees to which it would have been entitled. The Investment
Adviser may discontinue or modify any such voluntary limitations in the
future at its discretion.
39
<PAGE>
FUND MANAGERS
Fixed Income Portfolio Management Team
..The fixed-income portfolio management team is comprised of a deep team of
sector specialists
..The team strives to maximize risk-adjusted returns by de-emphasizing
interest rate anticipation and focusing on security selection and sector
allocation
..The team manages approximately $50.5 billion in fixed-income assets for
retail, institutional and high net worth clients
U.S. Fixed Income-Investment Management Team
<TABLE>
<CAPTION>
Years Primarily
Name and Title Fund Responsibility Responsible Five Year Employment History
- ---------------------------------------------------------------------------------------------
<C> <C> <C> <S>
Jonathan A. Senior Portfolio Since Mr. Beinner joined the
Beinner Manager-- Adjustable Rate Investment Adviser in
Managing Government 1992 1990. He became a
Director and Short Duration Government 1992 portfolio manager in
Co-Head U.S. Government Income 1992 1992.
Fixed Income Core Fixed Income 1992
- ---------------------------------------------------------------------------------------------
James B. Clark Portfolio Manager-- Since Mr. Clark joined the
Vice President Adjustable Rate Investment Adviser in
Government 1994 1994 as a portfolio
Short Duration Government 1994 manger after working as
Government Income 1994 an investment manager in
Core Fixed Income 2000 the mortgage-backed
securities group at
Travelers Insurance
Company.
- ---------------------------------------------------------------------------------------------
Peter A. Dion Portfolio Manager-- Since Mr. Dion joined the
Vice President Adjustable Rate Investment Adviser in
Government 1995 1992. From 1994 to 1995
Short Duration Government 1995 he was an associate
portfolio manager. He
became a portfolio
manager in 1995.
- ---------------------------------------------------------------------------------------------
C. Richard Lucy Since Mr. Lucy joined the
Managing Senior Portfolio Investment Adviser in
Director and Manager-- Adjustable Rate 1992 as a portfolio
Co-Head U.S. Government 1992 manager.
Fixed Income Short Duration Government 1992
Government Income 1992
Core Fixed Income 1992
- ---------------------------------------------------------------------------------------------
James P. Portfolio Manager-- Since Mr. McCarthy joined the
McCarthy Adjustable Rate Investment Adviser in
Vice President Government 1995 1995 as a portfolio
Short Duration Government 1995 manager after working
four years at Nomura
Securities, where he was
an assistant vice
president and an
adjustable rate mortgage
trader.
- ---------------------------------------------------------------------------------------------
</TABLE>
40
<PAGE>
SERVICE PROVIDERS
U.S. Fixed Income-Municipal Investment Management Team
<TABLE>
<CAPTION>
Years Primarily
Name and Title Fund Responsibility Responsible Five Year Employment History
- ------------------------------------------------------------------------------------
<C> <C> <C> <S>
Ben Barber Portfolio Manager-- Since Mr. Barber joined the
Vice President Short Duration Tax- 1999 Investment Adviser in
Free 1999 1999 as a portfolio
Municipal Income 2000 manager. Prior to his
High Yield current position, he
Municipal managed high yield
municipal and municipal
bond funds at Franklin
Templeton for eight
years.
- ------------------------------------------------------------------------------------
Tom Kenny Senior Since Mr. Kenny joined the
Managing Portfolio Manager-- 1999 Investment Adviser in
Director and Short Duration Tax- 1999 1999 as a senior
Head of Free 2000 portfolio manager.
Municipal Bond Municipal Income Previously, he spent 13
Portfolio High Yield years at Franklin
Management Municipal Templeton where he was a
portfolio manager of high
yield municipal and
municipal funds, Director
of Municipal Research and
Director of the Municipal
Bond Department.
- ------------------------------------------------------------------------------------
</TABLE>
U.S. Fixed Income-High Yield Investment Management Team
<TABLE>
<CAPTION>
Years Primarily
Name and Title Fund Responsibility Responsible Five Year Employment History
- ----------------------------------------------------------------------------------
<C> <C> <C> <S>
Rachel Golder Portfolio Since Ms. Golder joined the
Vice President Manager-- 1997 Investment Adviser in 1997
and Director of High Yield as a portfolio manager. She
High Yield is responsible for managing
Credit Research high yield assets. Prior to
joining the Investment
Adviser, she spent six
years at Saudi
International Bank as a
high yield credit analyst
and portfolio manager.
- ----------------------------------------------------------------------------------
Andrew Jessop Senior Portfolio Since Mr. Jessop joined the
Vice President Manager-- 1997 Investment Adviser in 1997
High Yield as a portfolio manager. He
is responsible for managing
high yield assets.
Previously, he worked six
years managing high yield
portfolios at Saudi
International Bank in
London.
- ----------------------------------------------------------------------------------
</TABLE>
41
<PAGE>
<TABLE>
<CAPTION>
Years Primarily
Name and Title Fund Responsibility Responsible Five Year Employment History
- ----------------------------------------------------------------------------------
<C> <C> <C> <S>
Michael L. Senior Portfolio Since Mr. Pasternak is a product
Pasternak Manager-- 1997 manager for high yield
Vice President High Yield assets and contributes to
the management of high
yield assets. He joined the
Investment Adviser in 1997
as a portfolio manager.
Prior to that, he spent
eight years managing high
yield corporate bond and
loan portfolios at Saudi
International Bank in
London.
- ----------------------------------------------------------------------------------
Christopher Portfolio Since Mr. Testa joined the
Testa Manager-- 1997 Investment Adviser in 1994.
Vice President High Yield He became a portfolio
manager in 1996. He has
been responsible for
managing high yield assets
since 1997.
- ----------------------------------------------------------------------------------
</TABLE>
Global Fixed Income--Investment Management Team
<TABLE>
<CAPTION>
Years Primarily
Name and Title Fund Responsibility Responsible Five Year Employment History
- ----------------------------------------------------------------------------------
<C> <C> <C> <S>
Stephen Senior Portfolio Since Mr. Fitzgerald joined the
Fitzgerald Manager-- 1992 Investment Adviser in 1992
Managing Global Income as a portfolio manager.
Director and
Chief
Investment
Officer for
International
Fixed Income
- ----------------------------------------------------------------------------------
Philip Moffitt Portfolio Since Philip joined the
Executive Manager-- 2000 Investment Adviser in 1999
Director; Global Income as a portfolio manager.
Senior Currency Fund Prior to joining the
Portfolio Investment Adviser he
Manager worked for three years as a
proprietary trader for
Tokai Asia Ltd in Hong
Kong. Before that Philip
spent ten years with
Bankers Trust Asset
Management in Australia,
where he was a Managing
Director responsible for
all active global fixed
income funds as well as a
member of the Asset
Allocation Committee.
- ----------------------------------------------------------------------------------
</TABLE>
42
<PAGE>
SERVICE PROVIDERS
<TABLE>
<CAPTION>
Years Primarily
Name and Title Fund Responsibility Responsible Five Year Employment History
- ----------------------------------------------------------------------------------
<C> <C> <C> <S>
Andrew Wilson Portfolio Since Mr. Wilson joined the
Managing Manager-- 1995 Investment Adviser in 1995
Director Global Income as a portfolio manager.
Prior to his current
position, he spent three
years as an Assistant
Director at Rothschild
Asset Management, where he
was responsible for
managing global and
international bond
portfolios with specific
focus on the U.S.,
Canadian, Australian and
Japanese economies.
- ----------------------------------------------------------------------------------
Jennifer Youde Portfolio Since Jennifer joined the
Executive Manager-- 2000 Investment Adviser in 1996
Director Global Income as a portfolio manager and
Fund is a member of the Global
Bond Team. Prior to this,
she was at CINMan for
thirteen years, where she
ran the Japanese and Far
Eastern equity portfolios
for six years, before
taking over the management
of the global bond and
index-linked portfolios.
- ----------------------------------------------------------------------------------
</TABLE>
DISTRIBUTOR AND TRANSFER AGENT
Goldman Sachs, 85 Broad Street, New York, New York 10004, serves as the
exclusive distributor (the "Distributor") of each Fund's shares. Goldman
Sachs, 4900 Sears Tower, Chicago, Illinois 60606-6372, also serves as the
Funds' transfer agent (the "Transfer Agent") and, as such, performs various
shareholder servicing functions.
From time to time, Goldman Sachs or any of its affiliates may purchase and
hold shares of the Funds. Goldman Sachs reserves the right to redeem at any
time some or all of the shares acquired for its own account.
ACTIVITIES OF GOLDMAN SACHS AND ITS AFFILIATES AND OTHER ACCOUNTS MANAGED BY
GOLDMAN SACHS
The involvement of the Investment Adviser, Goldman Sachs and their affili-
ates in the management of, or their interest in, other accounts and other
activities of Goldman Sachs may present conflicts of interest with respect
to a Fund or limit a Fund's investment activities. Goldman Sachs and its
affiliates engage in proprietary trading and advise accounts and funds which
have investment objectives similar to those of the Funds and/or which engage
in and compete for transactions in the same types of securities, currencies
and instruments as the Funds. Goldman
43
<PAGE>
Sachs and its affiliates will not have any obligation to make available any
information regarding their proprietary activities or strategies, or the
activities or strategies used for other accounts managed by them, for the
benefit of the management of the Funds. The results of a Fund's investment
activities, therefore, may differ from those of Goldman Sachs and its affil-
iates, and it is possible that a Fund could sustain losses during periods in
which Goldman Sachs and its affiliates and other accounts achieve signifi-
cant profits on their trading for proprietary or other accounts. In addi-
tion, the Funds may, from time to time, enter into transactions in which
other clients of Goldman Sachs have an adverse interest. A Fund's activities
may be limited because of regulatory restrictions applicable to Goldman
Sachs and its affiliates, and/or their internal policies designed to comply
with such restrictions.
YEAR 2000
Goldman Sachs spent a total of approximately $185 million over the past sev-
eral years to address the potential hardware, software and other computer
and technology issues and related concerns associated with the transition to
Year 2000 and to confirm that its service providers did the same. As a
result of those efforts, Goldman Sachs has not experienced any material dis-
ruptions in its operations in connection with, or following, the transition
to the Year 2000.
44
<PAGE>
Dividends
Over the course of the fiscal year, dividends accrued and paid will constitute
all or substantially all of the Funds' net investment income. The Funds also
intend that all net realized capital gains (after taking into account any
available capital loss carry- overs) will be declared as a dividend at least
annually. You may choose to have dividends paid in:
..Cash
..Additional shares of the same class of the same Fund
..Shares of the same or an equivalent class of another Goldman Sachs Fund.
Special restrictions may apply for certain ILA Portfolios. See the Additional
Statement.
You may indicate your election on your Account Application. Any changes may be
submitted in writing to Goldman Sachs at any time before the record date for a
particular dividend or distribution. If you do not indicate any choice, your
dividends and distributions will be reinvested automatically in the applicable
Fund. If cash dividends are elected with respect to the Fund's monthly net
investment income dividends, then cash dividends must also be elected with
respect to the non-long-term capital gains component, if any, of the Fund's
annual dividend.
The election to reinvest dividends and distributions in additional shares will
not affect the tax treatment of such dividends and distributions, which will be
treated as received by you and then used to purchase the shares.
Dividends from net investment income and distributions from capital gains are
declared and paid as follows:
<TABLE>
<CAPTION>
Investment Income Capital Gains
Dividends Distributions
------------------ -----------------
Fund Declared Paid Declared and Paid
- ----------------------------------------------------------------
<S> <C> <C> <C>
Adjustable Rate Government Daily Monthly Annually
- ----------------------------------------------------------------
Short Duration Government Daily Monthly Annually
- ----------------------------------------------------------------
Short Duration Tax-Free Daily Monthly Annually
- ----------------------------------------------------------------
Government Income Daily Monthly Annually
- ----------------------------------------------------------------
Municipal Income Daily Monthly Annually
- ----------------------------------------------------------------
Core Fixed Income Daily Monthly Annually
- ----------------------------------------------------------------
Global Income Monthly Monthly Annually
- ----------------------------------------------------------------
High Yield Municipal Daily Monthly Annually
- ----------------------------------------------------------------
High Yield Daily Monthly Annually
- ----------------------------------------------------------------
</TABLE>
From time to time a portion of a Fund's dividends may constitute a return of
capital.
45
<PAGE>
At the time of an investor's purchase of shares of a Fund, a portion of the NAV
per share may be represented by undistributed income or undistributed realized
appreciation of the Fund's portfolio securities. Therefore, subsequent distri-
butions on such shares from such income or realized appreciation may be taxable
to you even if the NAV of the shares is, as a result of the distributions,
reduced below the cost of such shares and the distributions (or portions there-
of) represent a return of a portion of the purchase price.
46
<PAGE>
Shareholder Guide
The following section will provide you with answers to some of the most
often asked questions regarding buying and selling the Funds' Service
Shares.
HOW TO BUY SHARES
How Can I Purchase Service Shares Of The Funds?
Generally, Service Shares may be purchased only through institutions that
have agreed to provide account administration and personal and account main-
tenance services to their customers who are the beneficial owners of Service
Shares. These institutions are called "Service Organizations." Customers of
a Service Organization will normally give their purchase instructions to the
Service Organization, and the Service Organization will, in turn, place pur-
chase orders with Goldman Sachs. Service Organizations will set times by
which purchase orders and payments must be received by them from their cus-
tomers. Generally, Service Shares may be purchased from the Funds on any
business day at their NAV next determined after receipt of an order by
Goldman Sachs from a Service Organization. No sales load is charged. Pur-
chases of Service Shares must be settled within three business days of
receipt of a complete purchase order.
Service Organizations are responsible for transmitting purchase orders and
payments to Goldman Sachs in a timely fashion. Service Organizations should
place an order with Goldman Sachs at 1-800-621-2550 and either:
..Wire federal funds to The Northern Trust Company ("Northern"), as
subcustodian for State Street Bank and Trust Company ("State Street") (each
Fund's custodian) on the next business day; or
..Send a check or Federal Reserve draft payable to Goldman Sachs Funds--(Name
of Fund and Class of Shares), 4900 Sears Tower--60th Floor, Chicago, IL
60606-6372. The Fund will not accept a check drawn on a foreign bank or a
third-party check.
What Do I Need To Know About Service Organizations?
Service Organizations may provide the following services in connection with
their customers' investments in Service Shares:
47
<PAGE>
..Acting, directly or through an agent, as the sole shareholder of record
..Maintaining account records for customers
..Processing orders to purchase, redeem or exchange shares for customers
..Responding to inquiries from prospective and existing shareholders
..Assisting customers with investment procedures
In addition, some (but not all) Service Organizations are authorized to
accept, on behalf of Goldman Sachs Trust (the "Trust"), purchase, redemption
and exchange orders placed by or on behalf of their customers, and may des-
ignate other intermediaries to accept such orders, if approved by the Trust.
In these cases:
..A Fund will be deemed to have received an order in proper form when the
order is accepted by the authorized Service Organization or intermediary on
a business day, and the order will be priced at the Fund's NAV next deter-
mined after such acceptance.
..Service Organizations or intermediaries will be responsible for transmit-
ting accepted orders and payments to the Trust within the time period
agreed upon by them.
You should contact your Service Organization directly to learn whether it is
authorized to accept orders for the Trust.
Pursuant to a service plan adopted by the Trust's Board of Trustees, Service
Organizations are entitled to receive payment for their services from the
Trust of up to 0.50% (on an annualized basis) of the average daily net
assets of the Service Shares of the Funds, which are attributable to or held
in the name of the Service Organization for its customers.
The Investment Adviser, Distributor and/or their affiliates may pay addi-
tional compensation from time to time, out of their assets and not as an
additional charge to the Funds, to selected Service Organizations and other
persons in connection with the sale, distribution and/or servicing of shares
of the Funds and other Goldman Sachs Funds. Additional compensation based on
sales may, but is currently not expected to, exceed 0.50% (annualized) of
the amount invested.
In addition to Service Shares, each Fund also offers other classes of shares
to investors. These other share classes are subject to different fees and
expenses (which affect performance), have different minimum investment
requirements and are entitled to different services than Service Shares.
Information regarding these other share classes may be obtained from your
sales representative or from Goldman Sachs by calling the number on the back
cover of this Prospectus.
What Is My Minimum Investment In The Funds?
The Funds do not have any minimum purchase or account requirements with
respect to Service Shares. A Service Organization may, however, impose a
48
<PAGE>
SHAREHOLDER GUIDE
minimum amount for initial and subsequent investments in Service Shares, and
may establish other requirements such as a minimum account balance. A Serv-
ice Organization may redeem Service Shares held by non-complying accounts,
and may impose a charge for any special services.
What Else Should I Know About Share Purchases?
The Trust reserves the right to:
..Reject or restrict any purchase or exchange orders by a particular pur-
chaser (or group of related purchasers). This may occur, for example, when
a pattern of frequent purchases, sales or exchanges of Service Shares of a
Fund is evident, or if purchases, sales or exchanges are, or a subsequent
abrupt redemption might be, of a size that would disrupt the management of
a Fund.
..Close a Fund to new investors from time to time and reopen any such Fund
whenever it is deemed appropriate by a Fund's Investment Adviser.
The Funds may allow Service Organizations to purchase shares with securities
instead of cash if consistent with a Fund's investment policies and opera-
tions and if approved by the Fund's Investment Adviser.
How Are Shares Priced?
The price you pay or receive when you buy, sell or exchange Service Shares
is determined by a Fund's NAV. The Funds calculate NAV as follows:
(Value of Assets of the Class)
- (Liabilities of the Class)
NAV = ------------------------------------------
Number of Outstanding Shares of the Class
The Funds' investments are valued based on market quotations, which may be
furnished by a pricing service or provided by securities dealers. If accu-
rate quotations are not readily available, the fair value of the Funds'
investments may be determined based on yield equivalents, a pricing matrix
or other sources, under valuation procedures established by the Trustees.
Debt obligations with a remaining maturity of 60 days or less are valued at
amortized cost.
..NAV per share of each class is calculated by State Street on each business
day as of the close of regular trading on the New York Stock Exchange (nor-
mally 4:00 p.m. New York time). This occurs after the determination, if
any, of income declared as a dividend (except in the case of the Global
Income Fund). Fund shares will not be priced on any day the New York Stock
Exchange is closed.
..When you buy shares, you pay the NAV next calculated after the Funds
receive your order in proper form.
..When you sell shares, you receive the NAV next calculated after the Funds
receive your order in proper form.
49
<PAGE>
Note: The time at which transactions and shares are priced and the time by
which orders must be received may be changed in case of an emergency or if
regular trading on the New York Stock Exchange is stopped at a time other
than 4:00 p.m. New York time.
Foreign securities may trade in their local markets on days a Fund is
closed. As a result, the NAV of a Fund that holds foreign securities may be
impacted on days when investors may not purchase or redeem Fund shares.
In addition, the impact of events that occur after the publication of market
quotations used by a Fund to price its securities (for example, in foreign
markets) but before the close of regular trading on the New York Stock
Exchange will normally not be reflected in a Fund's next determined NAV
unless the Trust, in its discretion, makes an adjustment in light of the
nature and materiality of the event, its effect on Fund operations and other
relevant factors.
When Will Shares Be Issued And Dividends Begin To Be Paid?
Global Income Fund: If a purchase order is received in proper form before
the Fund's NAV is determined, shares will be issued the same day and will be
entitled to any dividend declared on or after such purchase date.
For all other Funds:
..Shares Purchased by Federal Funds Wire:
.If a purchase order in proper form specifies a settlement date and is
received before the Fund's NAV is determined that day, shares will be
issued and dividends will begin to accrue on the purchased shares on the
later of (i) the business day after the purchase order is received; or
(ii) the day that the federal funds wire is received by State Street.
.If a purchase order in proper form does not specify a settlement date,
shares will be issued and dividends will begin to accrue on the business
day after payment is received.
..Shares Purchased by Check or Federal Reserve Draft:
.If a purchase order in proper form specifies a settlement date and is
received before the Fund's NAV is determined that day, shares will be
issued and dividends will begin to accrue on the business day after pay-
ment is received.
.If a purchase order in proper form does not specify a settlement date,
shares will be issued and dividends will begin to accrue on the business
day after payment is received.
50
<PAGE>
SHAREHOLDER GUIDE
HOW TO SELL SHARES
How Can I Sell Service Shares Of The Funds?
Generally, Service Shares may be sold (redeemed) only through Service Orga-
nizations. Customers of a Service Organization will normally give their
redemption instructions to the Service Organization, and the Service Organi-
zation will, in turn, place redemption orders with the Funds. Generally,
each Fund will redeem its Service Shares upon request on any business day at
their NAV next determined after receipt of such request in proper form.
Redemption proceeds may be sent to recordholders by check or by wire (if the
wire instructions are on record).
A Service Organization may request redemptions in writing or by telephone if
the optional telephone redemption privilege is elected on the Account Appli-
cation.
<TABLE>
--------------------------------------------------------------
<S> <C>
By Writing: Goldman Sachs Funds
4900 Sears Tower--60th Floor
Chicago, IL 60606-6372
--------------------------------------------------------------
By Telephone: If you have elected the telephone redemption
privilege on your Account Application:
.1-800-621-2550
(8:00 a.m. to 4:00 p.m. New York time)
--------------------------------------------------------------
</TABLE>
What Do I Need To Know About Telephone Redemption Requests?
The Trust, the Distributor and the Transfer Agent will not be liable for any
loss you may incur in the event that the Trust accepts unauthorized tele-
phone redemption requests that the Trust reasonably believes to be genuine.
In an effort to prevent unauthorized or fraudulent redemption and exchange
requests by telephone, Goldman Sachs employs reasonable procedures specified
by the Trust to confirm that such instructions are genuine. If reasonable
procedures are not employed, the Trust may be liable for any loss due to
unauthorized or fraudulent transactions. The following general policies are
currently in effect:
..All telephone requests are recorded.
..Any redemption request that requires money to go to an account or address
other than that designated on the Account Application must be in writing
and signed by an authorized person designated on the Account Application.
The written request may be confirmed by telephone with both the requesting
party and the designated bank account to verify instructions.
..The telephone redemption option may be modified or terminated at any time.
Note: It may be difficult to make telephone redemptions in times of drastic
economic or market conditions.
51
<PAGE>
How Are Redemption Proceeds Paid?
By Wire: The Funds will arrange for redemption proceeds to be wired as fed-
eral funds to the bank account designated in the recordholder's Account
Application. The following general policies govern wiring redemption pro-
ceeds:
..Redemption proceeds will normally be wired on the next business day in fed-
eral funds (for a total of one business day delay), but may be paid up to
three business days following receipt of a properly executed wire transfer
redemption request. If the shares to be sold were recently paid for by
check, the Fund will pay the redemption proceeds when the check has
cleared, which may take up to 15 days. If the Federal Reserve Bank is
closed on the day that the redemption proceeds would ordinarily be wired,
wiring the redemption proceeds may be delayed one additional business day.
..To change the bank designated on your Account Application, you must send
written instructions signed by an authorized person designated on the
Account Application to the Transfer Agent.
..Neither the Trust nor Goldman Sachs assumes any responsibility for the per-
formance of intermediaries or your Service Organization in the transfer
process. If a problem with such performance arises, you should deal
directly with such intermediaries or Service Organizations.
By Check: A recordholder may elect in writing to receive redemption proceeds
by check. Redemption proceeds paid by check will normally be mailed to the
address of record within three business days of receipt of a properly exe-
cuted redemption request. If the shares to be sold were recently paid for by
check, the Fund will pay the redemption proceeds when the check has cleared,
which may take up to 15 days.
What Else Do I Need To Know About Redemptions?
The following generally applies to redemption requests:
..Service Shares of each Fund (other than the Global Income Fund) earn divi-
dends declared on the day the shares are redeemed.
..Additional documentation may be required when deemed appropriate by the
Transfer Agent. A redemption request will not be in proper form until such
additional documentation has been received.
..Service Organizations are responsible for the timely transmittal of redemp-
tion requests by their customers to the Transfer Agent. In order to facili-
tate the timely transmittal of redemption requests, Service Organizations
may set times by which they must receive redemption requests. Service Orga-
nizations may also require additional documentation from you.
52
<PAGE>
SHAREHOLDER GUIDE
The Trust reserves the right to:
..Redeem the Service Shares of any Service Organization whose account balance
falls below $50 as a result of earlier redemptions. The Funds will not
redeem Service Shares on this basis if the value of the account falls below
the minimum account balance solely as a result of market conditions. The
Fund will give 60 days' prior written notice to allow a Service Organiza-
tion to purchase sufficient additional shares of the Fund in order to avoid
such redemption.
..Redeem the shares in other circumstances determined by the Board of Trust-
ees to be in the best interest of the Trust.
..Pay redemptions by a distribution in-kind of securities (instead of cash).
If you receive redemption proceeds in-kind, you should expect to incur
transaction costs upon the disposition of those securities.
Can I Exchange My Investment From One Fund To Another?
A Service Organization may exchange Service Shares of a Fund at NAV for
Service Shares of any other Goldman Sachs Fund. The exchange privilege may
be materially modified or withdrawn at any time upon 60 days' written
notice.
<TABLE>
<CAPTION>
Instructions For Exchanging Shares:
---------------------------------------------------------------
<S> <C>
By Writing: .Write a letter of instruction that includes:
.The recordholder name(s) and signature(s)
.The account number
.The Fund names and Class of Shares
.The dollar amount to be exchanged
.Mail the request to:
Goldman Sachs Funds
4900 Sears Tower--60th Floor
Chicago, IL 60606-6372
---------------------------------------------------------------
By Telephone: If you have elected the telephone exchange
privilege on your Account Application:
.1-800-621-2550
(8:00 a.m. to 4:00 p.m. New York time)
---------------------------------------------------------------
</TABLE>
You should keep in mind the following factors when making or considering an
exchange:
..You should obtain and carefully read the prospectus of the Fund you are
acquiring before making an exchange.
..All exchanges which represent an initial investment in a Fund must satisfy
the minimum initial investment requirements of that Fund, except that this
requirement may be waived at the discretion of the Trust.
..Telephone exchanges normally will be made only to an identically registered
account.
53
<PAGE>
..Shares may be exchanged among accounts with different names, addresses and
social security or other taxpayer identification numbers only if the
exchange instructions are in writing and are signed by an authorized person
designated on the Account Application.
..Exchanges are available only in states where exchanges may be legally made.
..It may be difficult to make telephone exchanges in times of drastic eco-
nomic or market conditions.
..Goldman Sachs may use reasonable procedures described under "What Do I Need
To Know About Telephone Redemption Requests?" in an effort to prevent unau-
thorized or fraudulent telephone exchange requests.
For federal income tax purposes, an exchange is treated as a redemption of
the shares surrendered in the exchange, on which you may be subject to tax,
followed by a purchase of shares received in the exchange. You should con-
sult your tax adviser concerning the tax consequences of an exchange.
What Types of Reports Will Be Sent Regarding Investments in Service Shares?
Service Organizations will receive from the Funds annual reports containing
audited financial statements and semi-annual reports. Service Organizations
will also be provided with a printed confirmation for each transaction in
their account and a monthly account statement (quarterly in the case of the
Global Income Fund). Service Organizations are responsible for providing
these or other reports to their customers who are the beneficial owners of
Service Shares in accordance with the rules that apply to their accounts
with the Service Organizations.
54
<PAGE>
Taxation
TAXABILITY OF DISTRIBUTIONS
As with any investment, you should consider how your investment in the Funds
will be taxed. The tax information below is provided as general information.
More tax information is available in the Additional Statement. You should
consult your tax adviser about the federal, state, local or foreign tax con-
sequences of your investment in the Funds.
Unless your investment is an IRA or other tax-advantaged account, you should
consider the possible tax consequences of Fund distributions and the sale of
your Fund shares.
Taxes on Distributions: Except for exempt-interest dividends paid by the
Short Duration Tax-Free, Municipal Income and High Yield Municipal Funds,
distributions of investment income are taxable as ordinary income for fed-
eral tax purposes, and may also be subject to state or local taxes. This is
true whether you reinvest your distributions in additional Fund shares or
receive them in cash. Distributions from the Short Duration Tax-Free, Munic-
ipal Income and High Yield Municipal Funds that are designated as "exempt
interest dividends" are generally not subject to federal income tax (but may
be subject to state or local taxes). Distributions of short-term capital
gains are taxable to you as ordinary income. Any long-term capital gain dis-
tributions are taxable as long-term capital gains, no matter how long you
have owned your Fund shares.
Although distributions are generally treated as taxable to you in the year
they are paid, distributions declared in October, November or December but
paid in January are taxable as if they were paid in December. The Funds will
inform shareholders of the source and tax status of all distributions
promptly after the close of each calendar year.
The Core Fixed Income, Global Income and High Yield Funds may be subject to
foreign withholding or other foreign taxes on income or gain from certain
foreign securities. In general, the Funds may deduct these taxes in comput-
ing their taxable income. Shareholders of the Global Income Fund may be
entitled to claim a credit or a deduction with respect to foreign taxes if
the Fund elects to passthrough these taxes to you. Your January statement
will provide the relevant foreign tax information to you.
The Short Duration Tax-Free, Municipal Income and High Yield Municipal Funds
expect to distribute "exempt-interest dividends," attributable to tax-exempt
inter -
55
<PAGE>
est earned by those Funds. However, investments in tax-exempt bonds can also
result in the recognition of income or gain by a Fund, and thereby cause a
portion of the Fund's distributions to shareholders to be taxable. Thus, if
the value of a bond appreciates while the Fund owns it (aside from apprecia-
tion attributable to original issue discount on the bond), and the Fund then
sells the bond at a gain, that gain will generally not be exempt from tax--
whether or not the interest income on the bond is exempt. Gain recognized by
a Fund on sales of appreciated bonds will generally be short-term or long-
term capital gain depending on whether the Fund has held the bonds for more
than one year, but "market discount" bonds can cause the Fund to recognize
ordinary income. "Market discount" is a discount at which a bond is pur-
chased that is attributable to a decline in the value of a bond after its
original issuance. The market discount is then taken into account ratably
over the bond's remaining term to maturity, and the portion that accrues
during the Fund's holding period for the bond is generally treated as tax-
able ordinary income to the extent of any realized gain on the bond upon
disposition or maturity. Distributions attributable to ordinary income and
short-term capital gain recognized by the Short Duration Tax-Free, Municipal
Income and High Yield Municipal Funds will be taxable to you as ordinary
income. Distributions attributable to the excess of Fund net long-term capi-
tal gains over net short-term capital losses, and designated by the Fund as
"capital gain dividends," will be taxable to you as long-term capital gain.
You should note that a portion of the exempt-interest dividends paid by the
Short Duration Tax-Free, Municipal Income, and High Yield Municipal Funds
may be a
preference item when determining your federal alternative minimum tax lia-
bility. Exempt-interest dividends are also taken into account in determining
the taxable portion of social security or railroad retirement benefits. Any
interest on indebtedness incurred by you to purchase or carry shares in the
Short Duration Tax-Free, Municipal Income, and High Yield Municipal Funds
generally will not be deductible for federal income tax purposes.
TAXABILITY OF SALES AND EXCHANGES
Your sale of Fund shares is a taxable transaction for federal income tax
purposes, and may also be subject to state and local taxes. For tax purpos-
es, the exchange of your Fund shares for shares of a different Goldman Sachs
Fund is the same as a sale. When you sell your shares, you will generally
recognize a capital gain or loss in an amount equal to the difference
between your adjusted tax basis in the shares and the amount received. Gen-
erally, this gain or loss is long-term or short-term depending on whether
your holding period exceeds twelve months, except that any loss realized on
shares held for six months or less will be treated as a long-term capital
loss to the extent of any capital gain dividends that were
56
<PAGE>
TAXATION
received on the shares. In addition, any loss realized on shares held for
six months or less will be disallowed to the extent of any exempt-interest
dividends that were received on the shares.
OTHER INFORMATION
When you open your account, you should provide your social security or tax
identification number on your Account Application. By law, each Fund must
withhold 31% of your taxable distributions and any redemption proceeds if
you do not provide your correct taxpayer identification number, or certify
that it is correct, or if the IRS instructs the Fund to do so. Non-U.S.
investors may be subject to U.S. withholding and estate tax.
57
<PAGE>
Appendix A
Additional Information on Portfolio Risks, Securities and Techniques
A. General Portfolio Risks
The Funds will be subject to the risks associated with fixed-income securi-
ties. These risks include interest rate risk, credit risk and call/extension
risk. In general, interest rate risk involves the risk that when interest
rates decline, the market value of fixed-income securities tends to increase
(although many mortgage related securities will have less potential than
other debt securities for capital appreciation during periods of declining
rates). Conversely, when interest rates increase, the market value of fixed-
income securities tends to decline. Credit risk involves the risk that the
issuer could default on its obligations, and a Fund will not recover its
investment. Call risk and extension risk are normally present in adjustable
rate mortgage loans ("ARMs"), Mortgage-Backed Securities and asset-backed
securities. For example, homeowners have the option to prepay their mort-
gages. Therefore, the duration of a security backed by home mortgages can
either shorten (call risk) or lengthen (extension risk). In general, if
interest rates on new mortgage loans fall sufficiently below the interest
rates on existing outstanding mortgage loans, the rate of prepayment would
be expected to increase. Conversely, if mortgage loan interest rates rise
above the interest rates on existing outstanding mortgage loans, the rate of
prepayment would be expected to decrease. In either case, a change in the
prepayment rate can result in losses to investors.
The Investment Adviser will not consider the portfolio turnover rate a lim-
iting factor in making investment decisions for a Fund. A high rate of port-
folio turnover (100% or more) involves correspondingly greater expenses
which must be borne by a Fund and its shareholders. The portfolio turnover
rate is calculated by dividing the lesser of the dollar amount of sales or
purchases of portfolio securities by the average monthly value of a Fund's
portfolio securities, excluding securities having a maturity at the date of
purchase of one year or less. See "Financial Highlights" in Appendix B for a
statement of the Funds' historical portfolio turnover rates.
The following sections provide further information on certain types of secu-
rities and investment techniques that may be used by the Funds, including
their associated risks. Additional information is provided in the Additional
Statement, which is available upon request. Among other things, the Addi-
tional Statement describes certain fundamental investment restrictions that
cannot be changed without shareholder approval. You should note, however,
that all investment objectives and
58
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APPENDIX A
policies not specifically designated as fundamental are non-fundamental and
may be changed without shareholder approval. If there is a change in a
Fund's investment objective, you should consider whether that Fund remains
an appropriate investment in light of your then current financial positions
and needs.
B. Other Portfolio Risks
Credit Risks. Debt securities purchased by the Funds may include securities
(including zero coupon bonds) issued by the U.S. government (and its agen-
cies, instrumentalities and sponsored enterprises), foreign governments,
domestic and foreign corporations, banks and other issuers. Some of these
fixed-income securities are described in the next section below. Further
information is provided in the Additional Statement.
Debt securities rated BBB or higher by Standard & Poor's or Baa or higher by
Moody's are considered "investment grade." Securities rated BBB or Baa are
considered medium-grade obligations with speculative characteristics, and
adverse economic conditions or changing circumstances may weaken their
issuers' capacity to pay interest and repay principal. A security will be
deemed to have met a rating requirement if it receives the minimum required
rating from at least one such rating organization even though it has been
rated below the minimum rating by one or more other rating organizations, or
if unrated by such rating organizations, determined by the Investment
Adviser to be of comparable credit quality.
Certain Funds may invest in fixed-income securities rated BB or Ba or below
(or comparable unrated securities) which are commonly referred to as "junk
bonds." Junk bonds are considered predominantly speculative and may be ques-
tionable as to principal and interest payments.
In some cases, junk bonds may be highly speculative, have poor prospects for
reaching investment grade standing and be in default. As a result, invest-
ment in such bonds will present greater speculative risks than those associ-
ated with investment in investment grade bonds. Also, to the extent that the
rating assigned to a security in a Fund's portfolio is downgraded by a rat-
ing organization, the market price and liquidity of such security may be
adversely affected.
Risks of Derivative Investments. A Fund's transactions in options, futures,
options on futures, swaps, interest rate caps, floors and collars, struc-
tured securities, inverse floating-rate securities, stripped mortgage-backed
securities and currency transactions involve additional risk of loss. Loss
can result from a lack of correlation between changes in the value of deriv-
ative instruments and the portfolio assets (if any) being hedged, the poten-
tial illiquidity of the markets for derivative instruments, or the risks
arising from margin requirements and related lever -
59
<PAGE>
age factors associated with such transactions. The use of these management
techniques also involves the risk of loss if the Investment Adviser is
incorrect in its expectation of fluctuations in securities prices, interest
rates or currency prices. Each Fund may also invest in derivative invest-
ments for non-hedging purposes (that is, to seek to increase total return),
which is considered a speculative practice and presents even greater risk of
loss.
Derivative Mortgage-Backed Securities (such as principal-only ("POs"),
interest-only ("IOs") or inverse floating rate securities) are particularly
exposed to call and extension risks. Small changes in mortgage prepayments
can significantly impact the cash flow and the market value of these securi-
ties. In general, the risk of faster than anticipated prepayments adversely
affects IOs, super floaters and premium priced Mortgage-Backed Securities.
The risk of slower than anticipated prepayments generally adversely affects
POs, floating-rate securities subject to interest rate caps, support
tranches and discount priced Mortgage-Backed Securities. In addition, par-
ticular derivative securities may be leveraged such that their exposure
(i.e., price sensitivity) to interest rate and/or prepayment risk is
magnified.
Some floating-rate derivative debt securities can present more complex types
of derivative and interest rate risks. For example, range floaters are sub-
ject to the risk that the coupon will be reduced below market rates if a
designated interest rate floats outside of a specified interest rate band or
collar. Dual index or yield curve floaters are subject to lower prices in
the event of an unfavorable change in the spread between two designated
interest rates.
Risks of Foreign Investments. Certain Funds may invest in foreign invest-
ments. Foreign investments involve special risks that are not typically
associated with U.S. dollar denominated or quoted securities of U.S.
issuers. Foreign investments may be affected by changes in currency rates,
changes in foreign or U.S. laws or restrictions applicable to such invest-
ments and changes in exchange control regulations (e.g., currency blockage).
A decline in the exchange rate of the currency (i.e., weakening of the cur-
rency against the U.S. dollar) in which a portfolio security is quoted or
denominated relative to the U.S. dollar would reduce the value of the port-
folio security. In addition, if the currency in which a Fund receives divi-
dends, interest or other payments declines in value against the U.S. dollar
before such income is distributed as dividends to shareholders or converted
to U.S. dollars, the Fund may have to sell portfolio securities to obtain
sufficient cash to pay such dividends.
The introduction of a single currency, the euro, on January 1, 1999 for par-
ticipating nations in the European Economic and Monetary Union presents
unique uncertainties, including the legal treatment of certain outstanding
financial contracts
60
<PAGE>
APPENDIX A
after January 1, 1999 that refer to existing currencies rather than the
euro; the establishment and maintenance of exchange rates for currencies
being converted into the euro; the fluctuation of the euro relative to non-
euro currencies during the transition period from January 1, 1999 to Decem-
ber 31, 2001 and beyond; whether the interest rate, tax and labor regimes of
European countries participating in the euro will converge over time; and
whether the conversion of the currencies of other countries that now are or
may in the future become members of the European Union ("EU"), may have an
impact on the euro. These or other factors, including political and economic
risks, could cause market disruptions, and could adversely affect the value
of securities held by the Funds. Because of the number of countries using
this single currency, a significant portion of the assets held by the Funds
may be denominated in the euro.
Brokerage commissions, custodial services and other costs relating to
investment in international securities markets generally are more expensive
than in the United States. In addition, clearance and settlement procedures
may be different in foreign countries and, in certain markets, such proce-
dures have been unable to keep pace with the volume of securities transac-
tions, thus making it difficult to conduct such transactions.
Foreign issuers are not generally subject to uniform accounting, auditing
and financial reporting standards comparable to those applicable to U.S.
issuers. There may be less publicly available information about a foreign
issuer than a U.S. issuer. In addition, there is generally less government
regulation of foreign markets, companies and securities dealers than in the
United States. Foreign securities markets may have substantially less volume
than U.S. securities markets and securities of many foreign issuers are less
liquid and more volatile than securities of comparable domestic issuers.
Furthermore, with respect to certain foreign countries, there is a possibil-
ity of nationalization, expropriation or confiscatory taxation, imposition
of withholding or other taxes on dividend or interest payments (or, in some
cases, capital gains), limitations on the removal of funds or other assets
of the Funds, and political or social instability or diplomatic developments
which could affect investments in those countries.
Concentration of a Fund's assets in one or a few countries and currencies
will subject a Fund to greater risks than if a Fund's assets were not geo-
graphically concentrated.
Investment in sovereign debt obligations by certain Funds involves risks not
present in debt obligations of corporate issuers. The issuer of the debt or
the governmental authorities that control the repayment of the debt may be
unable or unwilling to repay principal or interest when due in accordance
with the terms of such debt, and a Fund may have limited recourse to compel
payment in the event of a
61
<PAGE>
default. Periods of economic uncertainty may result in the volatility of
market prices of sovereign debt, and in turn a Fund's NAV, to a greater
extent than the volatility inherent in debt obligations of U.S. issuers.
A sovereign debtor's willingness or ability to repay principal and pay
interest in a timely manner may be affected by, among other factors, its
cash flow situation, the extent of its foreign currency reserves, the avail-
ability of sufficient foreign exchange on the date a payment is due, the
relative size of the debt service burden to the economy as a whole, the sov-
ereign debtor's policy toward international lenders, and the political
constraints to which a sovereign debtor may be subject.
Risks of Emerging Countries. Certain Funds may invest in securities of
issuers located in emerging countries. The risks of foreign investment are
heightened when the issuer is located in an emerging country. Emerging coun-
tries are generally located in the Asia-Pacific region, Eastern Europe,
Latin and South America and Africa. A Fund's purchase and sale of portfolio
securities in certain emerging countries may be constrained by limitations
as to daily changes in the prices of listed securities, periodic trading or
settlement volume and/or limitations on aggregate holdings of foreign
investors. Such limitations may be computed based on the aggregate trading
volume by or holdings of a Fund, the Investment Adviser, its affiliates and
their respective clients and other service providers. A Fund may not be able
to sell securities in circumstances where price, trading or settlement vol-
ume limitations have been reached.
Foreign investment in the securities markets of certain emerging countries
is restricted or controlled to varying degrees which may limit investment in
such countries or increase the administrative costs of such investments. For
example, certain Asian countries require governmental approval prior to
investments by foreign persons or limit investment by foreign persons to
only a specified percentage of an issuer's outstanding securities or a spe-
cific class of securities which may have less advantageous terms (including
price) than securities of the issuer available for purchase by nationals. In
addition, certain countries may restrict or prohibit investment opportuni-
ties in issuers or industries deemed important to national interests. Such
restrictions may affect the market price, liquidity and rights of securities
that may be purchased by a Fund. The repatriation of both investment income
and capital from certain emerging countries is subject to restrictions such
as the need for governmental consents. Due to restrictions on direct invest-
ment in equity securities in certain Asian countries, it is anticipated that
a Fund may invest in such countries through other investment funds in such
countries.
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<PAGE>
APPENDIX A
Many emerging countries have experienced currency devaluations and substan-
tial (and, in some cases, extremely high) rates of inflation, which have had
a negative effect on the economies and securities markets of those emerging
countries. Economies in emerging countries generally are dependent heavily
upon commodity prices and international trade and, accordingly, have been
and may continue to be affected adversely by the economies of their trading
partners, trade barriers, exchange controls, managed adjustments in relative
currency values and other protectionist measures imposed or negotiated by
the countries with which they trade.
Many emerging countries are subject to a substantial degree of economic,
political and social instability. Governments of some emerging countries are
authoritarian in nature or have been installed or removed as a result of
military coups, while governments in other emerging countries have periodi-
cally used force to suppress civil dissent. Disparities of wealth, the pace
and success of democratization, and ethnic, religious and racial disaffec-
tion, among other factors, have also led to social unrest, violence and/or
labor unrest in some emerging countries. Unanticipated political or social
developments may result in sudden and significant investment losses. Invest-
ing in emerging countries involves greater risk of loss due to expropria-
tion, nationalization, confiscation of assets and property or the imposition
of restrictions on foreign investments and on repatriation of capital
invested.
A Fund's investment in emerging countries may also be subject to withholding
or other taxes, which may be significant and may reduce the return from an
investment in such country to the Fund.
Settlement procedures in emerging countries are frequently less developed
and reliable than those in the United States and often may involve a Fund's
delivery of securities before receipt of payment for their sale. In addi-
tion, significant delays are common in certain markets in registering the
transfer of securities. Settlement or registration problems may make it more
difficult for a Fund to value its portfolio securities and could cause the
Fund to miss attractive investment opportunities, to have a portion of its
assets uninvested or to incur losses due to the failure of a counterparty to
pay for securities the Fund has delivered or the Fund's inability to com-
plete its contractual obligations. The creditworthiness of the local securi-
ties firms used by a Fund in emerging countries may not be as sound as the
creditworthiness of firms used in more developed countries. As a result, the
Fund may be subject to a greater risk of loss if a securities firm defaults
in the performance of its responsibilities.
The small size and inexperience of the securities markets in certain emerg-
ing countries and the limited volume of trading in securities in those coun-
tries may make a Fund's investments in such countries less liquid and more
volatile than invest-
63
<PAGE>
ments in countries with more developed securities markets (such as the
United States, Japan and most Western European countries). A Fund's invest-
ments in emerging countries are subject to the risk that the liquidity of a
particular investment, or investments generally, in such countries will
shrink or disappear suddenly and without warning as a result of adverse eco-
nomic, market or political conditions or adverse investor perceptions,
whether or not accurate. Because of the lack of sufficient market liquidity,
a Fund may incur losses because it will be required to effect sales at a
disadvantageous time and then only at a substantial drop in price. Invest-
ments in emerging countries may be more difficult to price precisely because
of the characteristics discussed above and lower trading volumes.
A Fund's use of foreign currency management techniques in emerging countries
may be limited. Due to the limited market for these instruments in emerging
countries, the Investment Adviser does not currently anticipate that a sig-
nificant portion of the Funds' currency exposure in emerging countries, if
any, will be covered by such instruments.
Risks of Illiquid Securities. Each Fund may invest up to 15% of its net
assets in illiquid securities which cannot be disposed of in seven days in
the ordinary course of business at fair value. Illiquid securities include:
..Both domestic and foreign securities that are not readily marketable
..Certain municipal leases and participation interests
..Certain stripped Mortgage-Backed Securities
..Repurchase agreements and time deposits with a notice or demand period of
more than seven days
..Certain over-the-counter options
..Certain structured securities and all swap transactions
..Certain restricted securities, unless it is determined, based upon a review
of the trading markets for a specific restricted security, that such
restricted security is eligible for resale pursuant to Rule 144A under the
Securities Act of 1933 ("144A Securities") and, therefore, is liquid.
Investing in 144A Securities may decrease the liquidity of a Fund's portfo-
lio to the extent that qualified institutional buyers become for a time
uninterested in purchasing these restricted securities. The purchase price
and subsequent valuation of restricted and illiquid securities normally
reflect a discount, which may be significant, from the market price of com-
parable securities for which a liquid market exists.
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APPENDIX A
Temporary Investment Risks. Each Fund may, for temporary defensive purposes,
invest a certain percentage of its total assets in:
..U.S. Government Securities
..Repurchase agreements collateralized by U.S. Government Securities
Certain Funds may invest more than 20% of their respective net assets in
taxable investments and in investment grade securities for temporary defen-
sive purposes.
When a Fund's assets are invested in such instruments, the Fund may not be
achieving its investive objective.
C. Portfolio Securities and Techniques
This section provides further information on certain types of securities and
investment techniques that may be used by the Funds, including their associ-
ated risks. Further information is provided in the Additional Statement,
which is available upon request.
U.S. Government Securities and Related Custodial Receipts. Each Fund may
invest in U.S. Government Securities. U.S. Government Securities include
U.S. Treasury obligations and obligations issued or guaranteed by U.S. gov-
ernment agencies, instrumentalities or sponsored enterprises. U.S. Govern-
ment Securities may be supported by (a) the full faith and credit of the
U.S. Treasury (such as the Government National Mortgage Association ("Ginnie
Mae")); (b) the right of the issuer to borrow from the U.S. Treasury (such
as securities of the Student Loan Marketing Association); (c) the discre-
tionary authority of the U.S. government to purchase certain obligations of
the issuer (such as the Federal National Mortgage Association ("Fannie Mae")
and Federal Home Loan Mortgage Corporation ("Freddie Mac")); or (d) only the
credit of the issuer. U.S. Government Securities also include Treasury
receipts, zero coupon bonds and other stripped U.S. Government Securities,
where the interest and principal components of stripped U.S. Government
Securities are traded independently.
Interests in U.S. Government Securities may be purchased in the form of cus-
todial receipts that evidence ownership of future interest payments, princi-
pal payments or both on certain notes or bonds issued or guaranteed as to
principal and interest by the U.S. government, its agencies, instrumentali-
ties, political subdivisions or authorities. For certain securities law pur-
poses, custodial receipts are not considered obligations of the U.S. govern-
ment.
Mortgage-Backed Securities. Certain Funds may invest in Mortgage-Backed
Securities. Mortgage-Backed Securities represent direct or indirect partici-
pations in, or are collateralized by and payable from, mortgage loans
secured by real
65
<PAGE>
property. Mortgage-Backed Securities can be backed by either fixed rate
mortgage loans or adjustable rate mortgage loans, and may be issued by
either a governmental or non-governmental entity. Privately issued Mortgage-
Backed Securities are normally structured with one or more types of "credit
enhancement." However, these Mortgage-Backed Securities typically do not
have the same credit standing as U.S. government guaranteed Mortgage-Backed
Securities.
Mortgage-Backed Securities may include multiple class securities, including
collateralized mortgage obligations ("CMOs") and Real Estate Mortgage
Investment Conduit ("REMIC") pass-through or participation certificates.
CMOs provide an investor with a specified interest in the cash flow from a
pool of underlying mortgages or of other Mortgage-Backed Securities. CMOs
are issued in multiple classes. In many cases, payments of principal are
applied to the CMO classes in the order of their respective stated maturi-
ties, so that no principal payments will be made on a CMO class until all
other classes having an earlier stated maturity date are paid in full. A
REMIC is a CMO that qualifies for special tax treatment under the Code and
invests in certain mortgages principally secured by interests in real prop-
erty and other permitted investments.
Mortgaged-Backed Securities also include stripped Mortgage-Backed Securities
("SMBS"), which are derivative multiple class Mortgage-Backed Securities.
SMBS are usually structured with two different classes: one that receives
substantially all of the interest payments and the other that receives sub-
stantially all of the principal payments from a pool of mortgage loans. The
market value of SMBS consisting entirely of principal payments generally is
unusually volatile in response to changes in interest rates. The yields on
SMBS that receive all or most of the interest from mortgage loans are gener-
ally higher than prevailing market yields on other Mortgage-Backed Securi-
ties because their cash flow patterns are more volatile and there is a
greater risk that the initial investment will not be fully recouped.
Asset-Backed Securities. Each Fund may invest in asset-backed securities.
Asset-backed securities are securities whose principal and interest payments
are collateralized by pools of assets such as auto loans, credit card
receivables, leases, installment contracts and personal property. Asset-
backed securities are often subject to more rapid repayment than their
stated maturity date would indicate as a result of the pass-through of pre-
payments of principal on the underlying loans. During periods of declining
interest rates, prepayment of loans underlying asset-backed securities can
be expected to accelerate. Accordingly, a Fund's ability to maintain posi-
tions in such securities will be affected by reductions in the principal
amount of such securities resulting from prepayments, and its ability to
reinvest the returns of principal at comparable yields is subject to gener-
ally prevailing interest rates at that
66
<PAGE>
APPENDIX A
time. Asset-backed securities present credit risks that are not presented by
Mortgage-Backed Securities. This is because asset-backed securities gener-
ally do not have the benefit of a security interest in collateral that is
comparable to mortgage assets. There is the possibility that, in some cases,
recoveries on repossessed collateral may not be available to support pay-
ments on these securities. In the event of a default, a Fund may suffer a
loss if it cannot sell collateral quickly and receive the amount it is owed.
Municipal Securities. Certain Funds may invest in securities and instruments
issued by state and local government issuers. Municipal Securities in which
a Fund may invest consist of bonds, notes, commercial paper and other
instruments (including participation interests in such securities) issued by
or on behalf of the states, territories and possessions of the United States
(including the District of Columbia) and their political subdivisions, agen-
cies or instrumentalities, the interest on which, in the opinion of bond
counsel for the issuers or counsel selected by the Investment Adviser, is
exempt from regular federal income tax (i.e., excluded from gross income for
federal income tax purposes but not necessarily exempt from federal alterna-
tive minimum tax or from state or local taxes). Because of their tax-exempt
status, the yields and market values of Municipal Securities may be more
adversely impacted by changes in tax rates and policies than taxable fixed-
income securities.
Municipal Securities include both "general" and "revenue" bonds and may be
issued to obtain funds for various purposes. General obligations are secured
by the issuer's pledge of its full faith, credit and taxing power. Revenue
obligations are payable only from the revenues derived from a particular
facility or class of facilities.
Municipal Securities are often issued to obtain funds for various public
purposes, including the construction of a wide range of public facilities
such as bridges, highways, housing, hospitals, mass transportation, schools,
streets and water and sewer works. Municipal Securities include private
activity bonds, pre-refunded municipal securities and auction rate securi-
ties.
The obligations of the issuer to pay the principal of and interest on a
Municipal Security are subject to the provisions of bankruptcy, insolvency
and other laws affecting the rights and remedies of creditors, such as the
Federal Bankruptcy Act, and laws, if any, that may be enacted by Congress or
state legislatures extending the time for payment of principal or interest
or imposing other constraints upon the enforcement of such obligations.
There is also the possibility that, as a result of litigation or other con-
ditions, the power or ability of the issuer to pay when due the principal of
or interest on a Municipal Security may be materially affected.
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<PAGE>
In addition, Municipal Securities include municipal leases, certificates of
participation and "moral obligation" bonds. A municipal lease is an obliga-
tion issued by a state or local government to acquire equipment or facili-
ties. Certificates of participation represent interests in municipal leases
or other instruments, such as installment purchase agreements. Moral obliga-
tion bonds are supported by a moral commitment but not a legal obligation of
a state or local government. Municipal leases, certificates of participation
and moral obligation bonds frequently involve special risks not normally
associated with general obligation or revenue bonds. In particular, these
instruments permit governmental issuers to acquire property and equipment
without meeting constitutional and statutory requirements for the issuance
of debt. If, however, the governmental issuer does not periodically appro-
priate money to enable it to meet its payment obligations under these
instruments, it cannot be legally compelled to do so. If a default occurs,
it is likely that a Fund would be unable to obtain another acceptable source
of payment. Some municipal leases, certificates of participation and moral
obligation bonds may be illiquid.
Municipal Securities may also be in the form of a tender option bond, which
is a Municipal Security (generally held pursuant to a custodial arrangement)
having a relatively long maturity and bearing interest at a fixed rate sub-
stantially higher than prevailing short-term, tax-exempt rates. The bond is
typically issued with the agreement of a third party, such as a bank, bro-
ker-dealer or other financial institution, which grants the security holders
the option, at periodic intervals, to tender their securities to the insti-
tution. After payment of a fee to the financial institution that provides
this option, the security holder effectively holds a demand obligation that
bears interest at the prevailing short-term, tax-exempt rate. An institution
may not be obligated to accept tendered bonds in the event of certain
defaults or a significant downgrading in the credit rating assigned to the
issuer of the bond. The tender option will be taken into account in deter-
mining the maturity of the tender option bonds and a Fund's average portfo-
lio maturity. There is risk that a Fund will not be considered the owner of
a tender option bond for federal income tax purposes, and thus will not be
entitled to treat such interest as exempt from federal income tax. Certain
tender option bonds may be illiquid.
Municipal Securities may be backed by letters of credit or other forms of
credit enhancement issued by domestic banks or foreign banks which have a
branch, agency or subsidiary in the United States or by other financial
institutions. The credit quality of these banks and financial institutions
could, therefore, cause a loss to a Fund that invests in Municipal Securi-
ties. Letters of credit and other obligations of foreign banks and financial
institutions may involve risks in addition to those of domestic obligations
because of less publicly available financial and other information, less
securities regulation, potential imposition of foreign withholding and other
taxes, war, expropriation or other adverse governmental
68
<PAGE>
APPENDIX A
actions. Foreign banks and their foreign branches are not regulated by U.S.
banking authorities, and are generally not bound by the accounting, auditing
and financial reporting standards applicable to U.S. banks.
Corporate Debt Obligations; Trust Preferred Securities; Convertible Securi-
ties. Certain Funds may invest in corporate debt obligations, trust pre-
ferred securities and convertible securities. Corporate debt obligations
include bonds, notes, debentures, commercial paper and other obligations of
corporations to pay interest and repay principal, and include securities
issued by banks and other financial institutions. A trust preferred security
is a long dated bond (for example, 30 years) with preferred features. The
preferred features are that payment of interest can be deferred for a speci-
fied period without initiating a default event. The securities are generally
senior in claim to standard preferred stock but junior to other bondholders.
Convertible securities are preferred stock or debt obligations that are con-
vertible into common stock. Convertible securities generally offer lower
interest or dividend yields than non-convertible securities of similar qual-
ity. Convertible securities in which a Fund invests are subject to the same
rating criteria as its other investments in fixed-income securities. Con-
vertible securities have both equity and fixed-income risk characteristics.
Like all fixed-income securities, the value of convertible securities is
susceptible to the risk of market losses attributable to changes in interest
rates. Generally, the market value of convertible securities tends to
decline as interest rates increase and, conversely, to increase as interest
rates decline. However, when the market price of the common stock underlying
a convertible security exceeds the conversion price of the convertible secu-
rity, the convertible security tends to reflect the market price of the
underlying common stock. As the market price of the underlying common stock
declines, the convertible security, like a fixed-income security, tends to
trade increasingly on a yield basis, and thus may not decline in price to
the same extent as the underlying common stock.
Foreign Currency Transactions. Certain Funds may, to the extent consistent
with their investment policies, purchase or sell foreign currencies on a
cash basis or through forward contracts. A forward contract involves an
obligation to purchase or sell a specific currency at a future date at a
price set at the time of the contract. Certain Funds may engage in foreign
currency transactions for hedging purposes and to seek to protect against
anticipated changes in future foreign currency exchange rates. In addition,
certain Funds also may enter into such transactions to seek to increase
total return, which is considered a speculative practice.
Some Funds may also engage in cross-hedging by using forward contracts in a
currency different from that in which the hedged security is denominated or
quoted if the Investment Adviser determines that there is a pattern of cor-
relation
69
<PAGE>
between the two currencies. A Fund may hold foreign currency received in
connection with investments in foreign securities when, in the judgment of
the Investment Adviser, it would be beneficial to convert such currency into
U.S. dollars at a later date (e.g., the Investment Adviser may anticipate
the foreign currency to appreciate against the U.S. dollar).
Currency exchange rates may fluctuate significantly over short periods of
time, causing, along with other factors, a Fund's NAV to fluctuate (when the
Fund's NAV fluctuates, the value of your shares may go up or down). Currency
exchange rates also can be affected unpredictably by the intervention of
U.S. or foreign governments or central banks, or the failure to intervene,
or by currency controls or political developments in the United States or
abroad.
The market in forward foreign currency exchange contracts, currency swaps
and other privately negotiated currency instruments offers less protection
against defaults by the other party to such instruments than is available
for currency instruments traded on an exchange. Such contracts are subject
to the risk that the counterparty to the contract will default on its obli-
gations. Since these contracts are not guaranteed by an exchange or clear-
inghouse, a default on a contract would deprive a Fund of unrealized prof-
its, transaction costs or the benefits of a currency hedge or could force
the Fund to cover its purchase or sale commitments, if any, at the current
market price.
Structured Securities and Inverse Floaters. Certain Funds may invest in
structured securities. Structured securities are securities whose value is
determined by reference to changes in the value of specific currencies,
interest rates, commodities, indices or other financial indicators (the
"Reference") or the relative change in two or more References. The interest
rate or the principal amount payable upon maturity or redemption may be
increased or decreased depending upon changes in the applicable Reference.
Structured securities may be positively or negatively indexed, so that
appreciation of the Reference may produce an increase or decrease in the
interest rate or value of the security at maturity. In addition, changes in
the interest rates or the value of the security at maturity may be a multi-
ple of changes in the value of the Reference. Consequently, structured secu-
rities may present a greater degree of market risk than other types of
fixed-income securities, and may be more volatile, less liquid and more dif-
ficult to price accurately than less complex securities.
Structured securities include, but are not limited to, inverse floating rate
debt securities ("inverse floaters"). The interest rate on inverse floaters
resets in the opposite direction from the market rate of interest to which
the inverse floater is indexed. An inverse floater may be considered to be
leveraged to the extent that its interest rate varies by a magnitude that
exceeds the magnitude of the change in
70
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APPENDIX A
the index rate of interest. The higher the degree of leverage of an inverse
floater, the greater the volatility of its market value.
Zero Coupon, Deferred Interest, Pay-In-Kind and Capital Appreciation Bonds.
Each Fund may invest in zero coupon, deferred interest, pay-in-kind and cap-
ital appreciation bonds are issued at a discount from their face value
because interest payments are typically postponed until maturity. Pay-in-
kind securities are securities that have interest payable by the delivery of
additional securities. The market prices of these securities generally are
more volatile than the market prices of interest-bearing securities and are
likely to respond to a greater degree to changes in interest rates than
interest-bearing securities having similar maturities and credit quality.
Mortgage Dollar Rolls. Certain Funds may enter into mortgage dollar rolls. A
mortgage dollar roll involves the sale by a Fund of securities for delivery
in the current month. The Fund simultaneously contracts with the same
counterparty to repurchase substantially similar (same type, coupon and
maturity) but not identical securities on a specified future date. During
the roll period, the Fund loses the right to receive principal and interest
paid on the securities sold. However, the Fund benefits to the extent of any
difference between (a) the price received for the securities sold and (b)
the lower forward price for the future purchase and/or fee income plus the
interest earned on the cash proceeds of the securities sold. Unless the ben-
efits of a mortgage dollar roll exceed the income, capital appreciation and
gain or loss due to mortgage prepayments that would have been realized on
the securities sold as part of the roll, the use of this technique will
diminish the Fund's performance.
Successful use of mortgage dollar rolls depends upon the Investment Advis-
er's ability to predict correctly interest rates and mortgage prepayments.
If the Investment Adviser is incorrect in its prediction, a Fund may experi-
ence a loss. For financial reporting and tax purposes, the Funds treat mort-
gage dollar rolls as two separate transactions: one involving the purchase
of a security and a separate transaction involving a sale. The Funds do not
currently intend to enter into mortgage dollar rolls that are accounted for
as a financing and do not treat them as borrowings.
Options on Securities, Securities Indices and Foreign Currencies. A put
option gives the purchaser of the option the right to sell, and the writer
(seller) of the option the obligation to buy, the underlying instrument dur-
ing the option period. A call option gives the purchaser of the option the
right to buy, and the writer (seller) of the option the obligation to sell,
the underlying instrument during the option period. Each Fund may write
(sell) covered call and put options and purchase put and call options on any
securities in which it may invest or on any
71
<PAGE>
securities index comprised of securities in which it may invest. A Fund may
also, to the extent that it invests in foreign securities, purchase and sell
(write) put and call options on foreign currencies.
The writing and purchase of options is a highly specialized activity which
involves special investment risks. Options may be used for either hedging or
cross-hedging purposes, or to seek to increase total return (which is con-
sidered a speculative activity). The successful use of options depends in
part on the ability of the Investment Adviser to manage future price fluctu-
ations and the degree of correlation between the options and securities (or
currency) markets. If the Investment Adviser is incorrect in its expectation
of changes in market prices or determination of the correlation between the
instruments or indices on which options are written and purchased and the
instruments in a Fund's investment portfolio, the Fund may incur losses that
it would not otherwise incur. The use of options can also increase a Fund's
transaction costs. Options written or purchased by the Funds may be traded
on either U.S. or foreign exchanges or over-the- counter. Foreign and over-
the-counter options will present greater possibility of loss because of
their greater illiquidity and credit risks.
Yield Curve Options. Each Fund may enter into options on the yield "spread"
or differential between two securities. Such transactions are referred to as
"yield curve" options. In contrast to other types of options, a yield curve
option is based on the difference between the yields of designated securi-
ties, rather than the prices of the individual securities, and is settled
through cash payments. Accordingly, a yield curve option is profitable to
the holder if this differential widens (in the case of a call) or narrows
(in the case of a put), regardless of whether the yields of the underlying
securities increase or decrease.
The trading of yield curve options is subject to all of the risks associated
with the trading of other types of options. In addition, such options pres-
ent a risk of loss even if the yield of one of the underlying securities
remains constant, or if the spread moves in a direction or to an extent
which was not anticipated.
Futures Contracts and Options on Futures Contracts. Futures contracts are
standardized, exchange-traded contracts that provide for the sale or pur-
chase of a specified financial instrument or currency at a future time at a
specified price. An option on a futures contract gives the purchaser the
right (and the writer of the option the obligation) to assume a position in
a futures contract at a specified exercise price within a specified period
of time. A futures contract may be based on various securities (such as U.S.
Government Securities), foreign currencies, securities indices and other
financial instruments and indices. The Funds may engage in futures transac-
tions on both U.S. and foreign exchanges.
Each Fund may purchase and sell futures contracts, and purchase and write
call and put options on futures contracts, in order to seek to increase
total return or to
72
<PAGE>
APPENDIX A
hedge against changes in interest rates, securities prices or, to the extent
a Fund invests in foreign securities, currency exchange rates, or to other-
wise manage their term structures, sector selection and durations in accor-
dance with their investment objectives and policies. Each Fund may also
enter into closing purchase and sale transactions with respect to such con-
tracts and options. A Fund will engage in futures and related options trans-
actions for bona fide hedging purposes as defined in regulations of the Com-
modity Futures Trading Commission or to seek to increase total return to the
extent permitted by such regulations. A Fund may not purchase or sell
futures contracts or purchase or sell related options to seek to increase
total return, except for closing purchase or sale transactions, if immedi-
ately thereafter the sum of the amount of initial margin deposits and premi-
ums paid on the Fund's outstanding positions in futures and related options
entered into for the purpose of seeking to increase total return would
exceed 5% of the market value of the Fund's net assets.
Futures contracts and related options present the following risks:
..While a Fund may benefit from the use of futures and options on futures,
unanticipated changes in interest rates, securities prices or currency
exchange rates may result in poorer overall performance than if the Fund
had not entered into any futures contracts or options transactions.
..Because perfect correlation between a futures position and portfolio posi-
tion that is intended to be protected is impossible to achieve, the desired
protection may not be obtained and a Fund may be exposed to additional risk
of loss.
..The loss incurred by a Fund in entering into futures contracts and in writ-
ing call options on futures is potentially unlimited and may exceed the
amount of the premium received.
..Futures markets are highly volatile and the use of futures may increase the
volatility of a Fund's NAV.
..As a result of the low margin deposits normally required in futures trad-
ing, a relatively small price movement in a futures contract may result in
substantial losses to a Fund.
..Futures contracts and options on futures may be illiquid, and exchanges may
limit fluctuations in futures contract prices during a single day.
..Foreign exchanges may not provide the same protection as U.S. exchanges.
When-Issued Securities and Forward Commitments. Each Fund may purchase when-
issued securities and enter into forward commitments. When-issued securities
are securities that have been authorized, but not yet issued. When-issued
securities are purchased in order to secure what is considered to be an
advantageous price and yield to the Fund at the time of entering into the
transaction. A forward commitment involves entering into a contract to pur-
chase or sell securities for a fixed price at a future date beyond the cus-
tomary settlement period.
73
<PAGE>
The purchase of securities on a when-issued or forward commitment basis
involves a risk of loss if the value of the security to be purchased
declines before the settlement date. Conversely, the sale of securities on a
forward commitment basis involves the risk that the value of the securities
sold may increase before the settlement date. Although a Fund will generally
purchase securities on a when-issued or forward commitment basis with the
intention of acquiring the securities for its portfolio, a Fund may dispose
of when-issued securities or forward commitments prior to settlement if the
Investment Adviser deems it appropriate.
Lending of Portfolio Securities. Each Fund may engage in securities lending.
Securities lending involves the lending of securities owned by a Fund to
financial institutions such as certain broker-dealers. The borrowers are
required to secure their loans continuously with cash, cash equivalents,
U.S. Government Securities or letters of credit in an amount at least equal
to the market value of the securities loaned. Cash collateral may be
invested in cash equivalents. To the extent that cash collateral is invested
in other investment securities, such collateral will be subject to market
depreciation or appreciation, and a Fund will be responsible for any loss
that might result from its investment of the borrowers' collateral. If the
Investment Adviser determines to make securities loans, the value of the
securities loaned may not exceed 33 1/3% of the value of the total assets of
a Fund (including the loan collateral).
A Fund may lend its securities to increase its income. A Fund may, however,
experience delay in the recovery of its securities, or capital loss if the
institution with which it has engaged in a portfolio loan transaction
breaches its agreement with the Fund.
Repurchase Agreements. Repurchase agreements involve the purchase of securi-
ties subject to the seller's agreement to repurchase them at a mutually
agreed upon date and price. Each Fund may enter into repurchase agreements
with dealers in U.S. Government Securities and member banks of the Federal
Reserve System which furnish collateral at least equal in value or market
price to the amount of their repurchase obligation. Some Funds may also
enter into repurchase agreements involving certain foreign government secu-
rities.
If the other party or "seller" defaults, a Fund might suffer a loss to the
extent that the proceeds from the sale of the underlying securities and
other collateral held by the Fund are less than the repurchase price and the
Fund's costs associated with delay and enforcement of the repurchase agree-
ment. In addition, in the event of bankruptcy of the seller, a Fund could
suffer additional losses if a court determines that the Fund's interest in
the collateral is not enforceable.
In evaluating whether to enter into a repurchase agreement, the Investment
Adviser will carefully consider the creditworthiness of the seller. Certain
Funds,
74
<PAGE>
APPENDIX A
together with other registered investment companies having advisory agree-
ments with the Investment Adviser or any of its affiliates, may transfer
uninvested cash balances into a single joint account, the daily aggregate
balance of which will be invested in one or more repurchase agreements.
Borrowings and Reverse Repurchase Agreements. Each Fund can borrow money
from banks and enter into reverse repurchase agreements with banks and other
financial institutions in amounts not exceeding one-third of its total
assets. A Fund may not make additional investments if borrowings exceed 5%
of its total assets. Reverse repurchase agreements involve the sale of secu-
rities held by a Fund subject to the Fund's agreement to repurchase them at
a mutually agreed upon date and price (including interest). These transac-
tions may be entered into as a temporary measure for emergency purposes or
to meet redemption requests. Reverse repurchase agreements may also be
entered into when the Investment Adviser expects that the interest income to
be earned from the investment of the transaction proceeds will be greater
than the related interest expense. Borrowings and reverse repurchase agree-
ments involve leveraging. If the securities held by a Fund decline in value
while these transactions are outstanding, the NAV of the Fund's outstanding
shares will decline in value by proportionately more than the decline in
value of the securities. In addition, reverse repurchase agreements involve
the risk that the interest income earned by a Fund (from the investment of
the proceeds) will be less than the interest expense of the transaction,
that the market value of the securities sold by a Fund will decline below
the price the Fund is obligated to pay to repurchase the securities, and
that the securities may not be returned to the Fund.
Interest Rate Swaps, Mortgage Swaps, Credit Swaps, Currency Swaps and Inter-
est Rate Caps, Floors and Collars. Interest rate swaps involve the exchange
by a Fund with another party of their respective commitments to pay or
receive interest, such as an exchange of fixed-rate payments for floating
rate payments. Mortgage swaps are similar to interest rate swaps in that
they represent commitments to pay and receive interest. The notional princi-
pal amount, however, is tied to a reference pool or pools of mortgages.
Credit swaps involve the receipt of floating or fixed rate payments in
exchange for assuming potential credit losses of an underlying security.
Credit swaps give one party to a transaction the right to dispose of or
acquire an asset (or group of assets), or the right to receive or make a
payment from the other party, upon the occurrence of specified credit
events. Currency swaps involve the exchange of the parties' respective
rights to make or receive payments in specified currencies. The purchase of
an interest rate cap entitles the purchaser, to the extent that a specified
index exceeds a predetermined interest rate, to receive payment of interest
on a notional principal amount from the party selling such interest rate
cap. The purchase of an interest rate floor entitles the
75
<PAGE>
purchaser, to the extent that a specified index falls below a predetermined
interest rate, to receive payments of interest on a notional principal
amount from the party selling the interest rate floor. An interest rate col-
lar is the combination of a cap and a floor that preserves a certain return
within a predetermined range of interest rates.
Each Fund may enter into swap transactions for hedging purposes or to seek
to increase total return. The use of interest rate, mortgage, credit and
currency swaps, as well as interest rate caps, floors and collars, is a
highly specialized activity which involves investment techniques and risks
different from those associated with ordinary portfolio securities transac-
tions. If the Investment Adviser is incorrect in its forecasts of market
values, interest rates and currency exchange rates, the investment perfor-
mance of a Fund would be less favorable than it would have been if these
investment techniques were not used.
Other Investment Companies. Each Fund may invest in securities of other
investment companies subject to statutory limitations prescribed by the Act.
These limitations include a prohibition on any Fund acquiring more than 3%
of the voting shares of any other investment company, and a prohibition on
investing more than 5% of a Fund's total assets in securities of any one
investment company or more than 10% of its total assets in securities of all
investment companies. A Fund will indirectly bear its proportionate share of
any management fees and other expenses paid by such other investment compa-
nies. Such other investment companies will have investment objectives, poli-
cies and restrictions substantially similar to those of the acquiring Fund
and will be subject to substantially the same risks.
Non-Investment Grade Fixed-Income Securities. Non-investment grade fixed-
income securities and unrated securities of comparable credit quality (com-
monly known as "junk bonds") are considered predominantly speculative by
traditional investment standards. In some cases, these obligations may be
highly speculative and have poor prospects for reaching investment grade
standing. Non-investment grade fixed-income securities are subject to the
increased risk of an issuer's inability to meet principal and interest obli-
gations. These securities, also referred to as high yield securities, may be
subject to greater price volatility due to such factors as specific corpo-
rate or municipal developments, interest rate sensitivity, negative percep-
tions of the junk bond markets generally and less secondary market
liquidity.
Non-investment grade fixed-income securities are often issued in connection
with a corporate reorganization or restructuring or as part of a merger,
acquisition, takeover or similar event. They are also issued by less estab-
lished companies seeking to expand. Such issuers are often highly leveraged
and generally less able than more established or less leveraged entities to
make scheduled payments of princi-
76
<PAGE>
APPENDIX A
pal and interest in the event of adverse developments or business condi-
tions. Non-investment grade securities are also issued by state, city, or
local municipalities that may have difficulty in making all scheduled inter-
est and principal payments.
The market value of non-investment grade fixed-income securities tends to
reflect individual corporate or municipal developments to a greater extent
than that of higher rated securities which react primarily to fluctuations
in the general level of interest rates. As a result, a Fund's ability to
achieve its investment objectives may depend to a greater extent on the
Investment Adviser's judgment concerning the creditworthiness of issuers
than funds which invest in higher-rated securities. Issuers of non-invest-
ment grade fixed-income securities may not be able to make use of more tra-
ditional methods of financing and their ability to service debt obligations
may be affected more adversely than issuers of higher-rated securities by
economic downturns, specific corporate or financial developments or the
issuer's inability to meet specific projected business forecasts. Negative
publicity about the junk bond market and investor perceptions regarding
lower rated securities, whether or not based on fundamental analysis, may
depress the prices for such securities.
A holder's risk of loss from default is significantly greater for non-
investment grade fixed-income securities than is the case for holders of
other debt securities because such non-investment grade securities are gen-
erally unsecured and are often subordinated to the rights of other creditors
of the issuers of such securities. Investment by a Fund in defaulted securi-
ties poses additional risk of loss should nonpayment of principal and inter-
est continue in respect of such securities. Even if such securities are held
to maturity, recovery by a Fund of its initial investment and any antici-
pated income or appreciation is uncertain.
The secondary market for non-investment grade fixed-income securities is
concentrated in relatively few market makers and is dominated by institu-
tional investors, including mutual funds, insurance companies and other
financial institutions. Accordingly, the secondary market for such securi-
ties is not as liquid as, and is more volatile than, the secondary market
for higher-rated securities. In addition, market trading volume for high
yield fixed-income securities is generally lower and the secondary market
for such securities could shrink or disappear suddenly and without warning
as a result of adverse market or economic conditions, independent of any
specific adverse changes in the condition of a particular issuer. Because of
the lack of sufficient market liquidity, a Fund may incur losses because it
will be required to effect sales at a disadvantageous time and then only at
a substantial drop in price. These factors may have an adverse effect on the
market price and a Fund's ability to dispose of particular portfolio invest-
ments. A less liquid secondary market also may make it more difficult for a
Fund to obtain precise valuations of the high yield securities in its port-
folio.
77
<PAGE>
Credit ratings issued by credit rating agencies are designed to evaluate the
safety of principal and interest payments of rated securities. They do not,
however, evaluate the market value risk of non-investment grade securities
and, therefore, may not fully reflect the true risks of an investment. In
addition, credit rating agencies may or may not make timely changes in a
rating to reflect changes in the economy or in the conditions of the issuer
that affect the market value of the security. Consequently, credit ratings
are used only as a preliminary indicator of investment quality.
Loan Participations. Certain Funds may invest in loan participations. A loan
participation is an interest in a loan to a U.S. or foreign company or other
borrower which is administered and sold by a financial intermediary. A Fund
may only invest in loans to issuers in whose obligations it may otherwise
invest. Loan participation interests may take the form of a direct or co-
lending relationship with the corporate borrower, an assignment of an inter-
est in the loan by a co-lender or another participant, or a participation in
the seller's share of the loan. When a Fund acts as co-lender in connection
with a participation interest or when it acquires certain participation
interests, the Fund will have direct recourse against the borrower if the
borrower fails to pay scheduled principal and interest. In cases where the
Fund lacks direct recourse, it will look to an agent for the lenders (the
"agent lender") to enforce appropriate credit remedies against the borrower.
In these cases, the Fund may be subject to delays, expenses and risks that
are greater than those that would have been involved if the Fund had pur-
chased a direct obligation (such as commercial paper) of such borrower.
Moreover, under the terms of the loan participation, the Fund may be
regarded as a creditor of the agent lender (rather than of the underlying
corporate borrower), so that the Fund may also be subject to the risk that
the agent lender may become insolvent.
Preferred Stock, Warrants and Rights. Certain Funds may invest in preferred
stock, warrants and rights. Preferred stocks are securities that represent
an ownership interest providing the holder with claims on the issuer's earn-
ings and assets before common stock owners but after bond owners. Unlike
debt securities, the obligations of an issuer of preferred stock, including
dividend and other payment obligations, may not typically be accelerated by
the holders of such preferred stock on the occurrence of an event of default
or other non-compliance by the issuer of the preferred stock.
Warrants and other rights are options to buy a stated number of shares of
common stock at a specified price at any time during the life of the warrant
or right. The holders of warrants and rights have no voting rights, receive
no dividends and have no rights with respect to the assets of the issuer.
78
<PAGE>
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79
<PAGE>
Appendix B
Financial Highlights
The financial highlights tables are intended to help you understand a Fund's
financial performance for the past five years (or less if the Fund has been
in operation for less than five years). Certain information reflects finan-
cial results for a single Fund share. The total returns in the table repre-
sent the rate that an investor would have earned or lost on an investment in
a Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by Arthur Andersen LLP, whose report, along
with a Fund's financial statements, is included in the Fund's annual report
(available upon request without charge). No financial highlights are
included for the High Yield Municipal Fund because it had no operating his-
tory prior to the date of this Prospectus.
ADJUSTABLE RATE GOVERNMENT FUND
<TABLE>
<CAPTION>
Income (loss) from
investment operations/a/
-------------------------
Net asset
value, Net Net realized
beginning investment and unrealized
of period income gain (loss)
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
For the Years Ended October 31,
1999 - Class A Shares $9.69 $0.49 $(0.05)
1999 - Institutional Shares 9.70 0.53 (0.05)
1999 - Administration Shares/g/ 9.70 0.37/f/ 0.01/f/
1999 - Service Shares 9.70 0.48 (0.04)
- -------------------------------------------------------------------------------
1998 - Class A Shares 9.88 0.53 (0.17)
1998 - Institutional Shares 9.88 0.55 (0.16)
1998 - Administration Shares 9.88 0.53 (0.16)
1998 - Service Shares 9.88 0.51 (0.16)
- -------------------------------------------------------------------------------
1997 - Class A Shares 9.83 0.57/f/ 0.05/f/
1997 - Institutional Shares 9.83 0.59/f/ 0.05/f/
1997 - Administration Shares 9.83 0.57/f/ 0.05/f/
1997 - Service Shares (commenced March 27) 9.84 0.33/f/ 0.04/f/
- -------------------------------------------------------------------------------
1996 - Class A Shares 9.77 0.55/f/ 0.08/f/
1996 - Institutional Shares 9.77 0.57/f/ 0.08/f/
1996 - Administration Shares 9.77 0.55/f/ 0.08/f/
- -------------------------------------------------------------------------------
1995 - Class A Shares (commenced May 15) 9.79 0.27/f/ (0.01)/f/
1995 - Institutional Shares 9.74 0.56/f/ 0.07/f/
1995 - Administration Shares 9.74 0.54/f/ 0.07/f/
- -------------------------------------------------------------------------------
</TABLE>
(a) Includes the balancing effect of calculating per share amounts.
(b) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all distributions, a complete redemption of the investment
at the net asset value at the end of period and no sales charge. Total
return would be reduced if a sales or redemption charge were taken into
account.
(c) Annualized.
(d) Not annualized.
(e) Includes the effect of mortgage dollar roll transactions.
(f) Calculated based on the average shares outstanding methodology.
(g) Administration Shares were liquidated on July 20, 1999. Ending net asset
value shown as of July 20, 1999.
80
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Distributions
to shareholders
--------------------------------
In excess Net increase Net asset Net assets Ratio of net
From net of net (decrease) value, at end of expenses
investment investment From in net end of Total period to average
income income capital asset value period returnb (in 000s) net assets
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$(0.44) $ -- $(0.06) $(0.06) $9.63 4.65% $ 22,862 0.89%
(0.48) -- (0.06) (0.06) 9.64 5.06 315,024 0.49
(0.33) -- (0.04) 0.01 9.71g 4.02d -- 0.74c
(0.43) -- (0.06) (0.05) 9.65 4.65 797 0.99
- -----------------------------------------------------------------------------------------
(0.53) (0.02) -- (0.19) 9.69 3.71 60,782 0.80
(0.55) (0.02) -- (0.18) 9.70 4.09 441,228 0.53
(0.53) (0.02) -- (0.18) 9.70 3.83 5,999 0.78
(0.51) (0.02) -- (0.18) 9.70 3.57 822 1.03
- -----------------------------------------------------------------------------------------
(0.57) -- -- 0.05 9.88 6.43 43,393 0.74
(0.59) -- -- 0.05 9.88 6.70 463,511 0.49
(0.57) -- -- 0.05 9.88 6.43 2,793 0.74
(0.33) -- -- 0.04 9.88 3.81d 346 1.05c
- -----------------------------------------------------------------------------------------
(0.55) (0.02) -- 0.06 9.83 6.60 10,728 0.70
(0.57) (0.02) -- 0.06 9.83 6.86 613,149 0.45
(0.55) (0.02) -- 0.06 9.83 6.60 3,792 0.70
- -----------------------------------------------------------------------------------------
(0.27) (0.01) -- (0.02) 9.77 2.74d 15,203 0.69c
(0.57) (0.03) -- 0.03 9.77 6.75 657,358 0.46
(0.55) (0.03) -- 0.03 9.77 6.48 3,572 0.71
- -----------------------------------------------------------------------------------------
</TABLE>
81
<PAGE>
ADJUSTABLE RATE GOVERNMENT FUND (continued)
<TABLE>
<CAPTION>
Ratios assuming
no voluntary waiver
of fees or
expense limitations
---------------------
Ratio of Ratio of
net net
investment Ratio of investment
income expenses income Portfolio
to average to average to average turnover
net assets net assets net assets ratee
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
For the Years Ended October 31,
1999 - Class A Shares 5.15% 0.93% 5.11% 38.86%
1999 - Institutional Shares 5.49 0.53 5.45 38.86
1999 - Administration Sharesg 5.35c 0.78c 5.31c 38.86
1999 - Service Shares 4.99 1.03 4.95 38.86
- ----------------------------------------------------------------------------
1998 - Class A Shares 5.40 1.02 5.18 33.64
1998 - Institutional Shares 5.63 0.53 5.63 33.64
1998 - Administration Shares 5.33 0.78 5.33 33.64
1998 - Service Shares 5.09 1.03 5.09 33.64
- ----------------------------------------------------------------------------
1997 - Class A Shares 5.60 1.02 5.32 46.58
1997 - Institutional Shares 5.99 0.52 5.96 46.58
1997 - Administration Shares 5.73 0.77 5.70 46.58
1997 - Service Shares (commenced
March 27) 5.64c 1.08c 5.61c 46.58
- ----------------------------------------------------------------------------
1996 - Class A Shares 5.59 1.01 5.28 52.36
1996 - Institutional Shares 5.85 0.51 5.79 52.36
1996 - Administration Shares 5.59 0.76 5.53 52.36
- ----------------------------------------------------------------------------
1995 - Class A Shares (commenced
May 15) 5.87c 1.01c 5.55c 24.12
1995 - Institutional Shares 5.77 0.53 5.70 24.12
1995 - Administration Shares 5.50 0.78 5.43 24.12
- ----------------------------------------------------------------------------
</TABLE>
(a) Includes the balancing effect of calculating per share amounts.
(b) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all distributions, a complete redemption of the investment
at the net asset value at the end of period and no sales charge. Total
return would be reduced if a sales charge for Class A shares were taken
into account.
(c) Annualized.
(d) Not annualized.
(e) Includes the effect of mortgage dollar roll transactions.
(f) Calculated based on the average shares outstanding methodology.
(g) Administration Shares were liquidated on July 20, 1999. Ending net asset
value shown as of July 20, 1999.
82
<PAGE>
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83
<PAGE>
SHORT DURATION GOVERNMENT FUND
<TABLE>
<CAPTION>
Income (loss) from
investment operationsa
-------------------------
Net asset
value, Net Net realized
beginning investment and unrealized
of period income gain (loss)
- --------------------------------------------------------------------
<S> <C> <C> <C>
For the Years Ended October 31,
1999 - Class A Shares $9.91 $0.55 $(0.36)
1999 - Class B Shares 9.88 0.48 (0.33)
1999 - Class C Shares 9.88 0.47 (0.36)
1999 - Institutional Shares 9.90 0.59 (0.35)
1999 - Administration Sharesh 9.91 0.40f (0.25)f
1999 - Service Shares 9.89 0.54 (0.35)
- --------------------------------------------------------------------
1998 - Class A Shares 9.88 0.57 0.04
1998 - Class B Shares 9.86 0.51 0.03
1998 - Class C Shares 9.86 0.49 0.03
1998 - Institutional Shares 9.86 0.58 0.06
1998 - Administration Shares 9.89 0.55 0.05
1998 - Service Shares 9.86 0.55 0.04
- --------------------------------------------------------------------
1997 - Class A Shares
(commenced May 1) 9.78 0.31f 0.09f
1997 - Class B Shares
(commenced May 1) 9.75 0.28f 0.10f
1997 - Class C Shares
(commenced August 15) 9.83 0.12f 0.02f
1997 - Institutional Shares 9.83 0.64f 0.03f
1997 - Administration Shares 9.85 0.62f 0.04f
1997 - Service Shares 9.82 0.59f 0.04f
- --------------------------------------------------------------------
1996 - Institutional Shares 9.82 0.63f 0.01f
1996 - Administration Sharesg 9.86 0.38f --f
1996 - Service Shares
(commenced April 10) 9.72 0.31f 0.10f
- --------------------------------------------------------------------
1995 - Institutional Shares 9.64 0.66f 0.17f
1995 - Administration Sharesg 9.64 0.24f (0.04)f
- --------------------------------------------------------------------
</TABLE>
(a) Includes the balancing effect of calculating per share amounts.
(b) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all distributions, a complete redemption of the investment
at the net asset value at the end of the period and no sales charge. Total
return would be reduced if a sales or redemption charge were taken into
account.
(c) Annualized.
(d) Not annualized.
(e) Includes the effect of mortgage dollar roll transactions.
(f) Calculated based on the average shares outstanding methodology.
(g) Short Duration Government Fund Administration Shares commenced activity on
April 15, 1993, were redeemed in full on February 23, 1995 and re-commenced
on February 28, 1996 at $9.86.
(h) Administration Shares were liquidated on July 20, 1999. Ending net asset
value shown as of July 20, 1999.
84
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Distributions
to
shareholders
-------------
Net
increase Net asset Net assets Ratio of net
From net (decrease) value, at end of expenses
investment in net end of Total period to average
income asset value period returnb (in 000s) net assets
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$(0.53) $(0.34) $9.57 1.97% $ 52,235 0.94%
(0.47) (0.32) 9.56 1.56 6,937 1.54
(0.45) (0.34) 9.54 1.21 7,029 1.69
(0.57) (0.33) 9.57 2.49 146,062 0.54
(0.39) (0.24) 9.67h 1.57d -- 0.79c
(0.52) (0.33) 9.56 1.97 6,605 1.04
- --------------------------------------------------------------------------------
(0.58) 0.03 9.91 6.36 56,725 0.81
(0.52) 0.02 9.88 5.62 5,025 1.41
(0.50) 0.02 9.88 5.46 4,527 1.56
(0.60) 0.04 9.90 6.75 145,514 0.53
(0.58) 0.02 9.91 6.27 7,357 0.78
(0.56) 0.03 9.89 6.12 6,232 1.03
- --------------------------------------------------------------------------------
(0.30) 0.10 9.88 4.14d 9,491 0.70c
(0.27) 0.11 9.86 3.94d 747 1.30c
(0.11) 0.03 9.86 1.44d 190 1.45c
(0.64) 0.03 9.86 7.07 103,729 0.45
(0.62) 0.04 9.89 6.91 1,060 0.70
(0.59) 0.04 9.86 6.63 3,337 0.95
- --------------------------------------------------------------------------------
(0.63) 0.01 9.83 6.75 99,944 0.45
(0.39) (0.01) 9.85 4.00d 252 0.70c
(0.31) 0.10 9.82 4.35d 1,822 0.95c
- --------------------------------------------------------------------------------
(0.65) 0.18 9.82 8.97 103,760 0.45
(0.21) (0.01) 9.63 2.10d -- 0.70c
- --------------------------------------------------------------------------------
</TABLE>
85
<PAGE>
SHORT DURATION GOVERNMENT FUND (continued)
<TABLE>
<CAPTION>
Ratios assuming no
voluntary waiver of
fees
or expense limitations
-----------------------
Ratio of net Ratio of net
investment Ratio of investment
income expenses income Portfolio
to average to average to average turnover
net assets net assets net assets ratee
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
For the Years Ended October 31,
1999 - Class A Shares 5.61% 1.07% 5.48% 172.61%
1999 - Class B Shares 5.04 1.82 4.76 172.61
1999 - Class C Shares 4.83 1.82 4.70 172.61
1999 - Institutional Shares 6.03 0.67 5.90 172.61
1999 - Administration Sharesh 5.76c 0.92c 5.63c 172.61
1999 - Service Shares 5.54 1.17 5.41 172.61
- -------------------------------------------------------------------------------
1998 - Class A Shares 5.68 1.32 5.17 119.89
1998 - Class B Shares 5.12 1.87 4.66 119.89
1998 - Class C Shares 4.64 1.87 4.33 119.89
1998 - Institutional Shares 6.06 0.84 5.75 119.89
1998 - Administration Shares 5.76 1.09 5.45 119.89
1998 - Service Shares 5.56 1.34 5.25 119.89
- -------------------------------------------------------------------------------
1997 - Class A Shares
(commenced May 1) 6.05c 1.32c 5.43c 102.58
1997 - Class B Shares
(commenced May 1) 5.52c 1.82c 5.00c 102.58
1997 - Class C Shares
(commenced August 15) 5.52c 1.82c 5.15c 102.58
1997 - Institutional Shares 6.43 0.82 6.06 102.58
1997 - Administration Shares 6.19 1.07 5.82 102.58
1997 - Service Shares 5.92 1.32 5.55 102.58
- -------------------------------------------------------------------------------
1996 - Institutional Shares 6.44 0.71 6.18 115.45
1996 - Administration Sharesg 5.97c 0.96c 5.71c 115.45
1996 - Service Shares
(commenced April 10) 6.05c 1.21c 5.79c 115.45
- -------------------------------------------------------------------------------
1995 - Institutional Shares 6.87 0.72 6.60 292.56
1995 - Administration Sharesg 7.91c 0.90c 7.71c 292.56
- -------------------------------------------------------------------------------
</TABLE>
(a) Includes the balancing effect of calculating per share amounts.
(b) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all distributions, a complete redemption of the investment
at the net asset value at the end of the period and no sales charge. Total
return would be reduced if a sales or redemption charge were taken into
account.
(c) Annualized.
(d) Not annualized.
(e) Includes the effect of mortgage dollar roll transactions.
(f) Calculated based on the average shares outstanding methodology.
(g) Short Duration Government Fund Administration Shares commenced activity on
April 15, 1993, were redeemed in full on February 23, 1995 and re-commenced
on February 28, 1996 at $9.86.
(h) Administration Shares were liquidated on July 20, 1999. Ending net asset
value shown as of July 20, 1999.
86
<PAGE>
[This page intentionally left blank]
87
<PAGE>
SHORT DURATION TAX-FREE FUND
<TABLE>
<CAPTION>
Income (loss) from
investment operationsa
-------------------------
Net realized
and unrealized
Net asset gain (loss)
value, Net on investment
beginning investment and futures
of period income transactions
- --------------------------------------------------------------------
<S> <C> <C> <C>
For the Years Ended October 31,
1999 - Class A Shares $10.19 $0.34 $(0.24)
1999 - Class B Shares 10.18 0.28 (0.23)
1999 - Class C Shares 10.18 0.26 (0.22)
1999 - Institutional Shares 10.18 0.38 (0.23)
1999 - Administration Sharesf 10.18 0.26e (0.12)e
1999 - Service Shares 10.18 0.33e (0.24)e
- --------------------------------------------------------------------
1998 - Class A Shares 10.08 0.36e 0.13e
1998 - Class B Shares 10.08 0.30e 0.12e
1998 - Class C Shares 10.07 0.28e 0.14e
1998 - Institutional Shares 10.07 0.39e 0.13e
1998 - Administration Shares 10.07 0.36e 0.13e
1998 - Service Shares 10.07 0.34e 0.13e
- --------------------------------------------------------------------
1997 - Class A Shares
(commenced May 1) 9.94 0.20e 0.14e
1997 - Class B Shares
(commenced May 1) 9.94 0.16e 0.14e
1997 - Class C Shares
(commenced August 15) 10.04 0.07e 0.03e
1997 - Institutional Shares 9.96 0.42e 0.11e
1997 - Administration Shares 9.96 0.39e 0.11e
1997 - Service Shares 9.97 0.37e 0.10e
- --------------------------------------------------------------------
1996 - Institutional Shares 9.94 0.42e 0.02e
1996 - Administration Shares 9.94 0.39e 0.02e
1996 - Service Shares 9.95 0.37e 0.02e
- --------------------------------------------------------------------
1995 - Institutional Shares 9.79 0.42e 0.15e
1995 - Administration Shares 9.79 0.40e 0.15e
1995 - Service Shares 9.79 0.37e 0.16e
- --------------------------------------------------------------------
</TABLE>
(a) Includes the balancing effect of calculating per share amounts.
(b) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all distributions, a complete redemption of the investment
at the net asset value at the end of period and no sales charge. Total
return would be reduced if a sales or redemption charge were taken into
account.
(c) Annualized.
(d) Not annualized.
(e) Calculated based on the average shares outstanding methodology.
(f) Administration Shares were liquidated on July 20, 1999. Ending net asset
value shown as of July 20, 1999.
88
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Distributions to shareholders
------------------------------------
Net Net Ratio of
In excess increase assets net
From net of net (decrease) Net asset at end of expenses
investment investment in net value, Total period to average
income income asset value end of period returnb (in 000s) net assets
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ (0.34) $ (0.02) $(0.26) $ 9.93 1.00% $22,903 0.79%
(0.28) (0.02) (0.25) 9.93 0.49 2,000 1.39
(0.26) (0.03) (0.25) 9.93 0.34 2,070 1.54
(0.39) (0.01) (0.25) 9.93 1.50 77,522 0.39
(0.27) -- (0.13) 10.05f 1.37d -- 0.64c
(0.33) (0.02) (0.26) 9.92 0.89 173 0.89
- ------------------------------------------------------------------------------------------------
(0.38) -- 0.11 10.19 4.97 19,881 0.71
(0.32) -- 0.10 10.18 4.25 974 1.31
(0.31) -- 0.11 10.18 4.19 2,256 1.46
(0.41) -- 0.11 10.18 5.25 57,647 0.45
(0.38) -- 0.11 10.18 4.99 525 0.70
(0.36) -- 0.11 10.18 4.73 2,560 0.95
- ------------------------------------------------------------------------------------------------
(0.20) -- 0.14 10.08 3.39d 4,023 0.70c
(0.16) -- 0.14 10.08 3.07d 106 1.30c
(0.07) -- 0.03 10.07 0.97d 2 1.45c
(0.42) -- 0.11 10.07 5.40 28,821 0.45
(0.39) -- 0.11 10.07 5.14 77 0.70
(0.37) -- 0.10 10.07 4.77 2,051 0.95
- ------------------------------------------------------------------------------------------------
(0.42) -- 0.02 9.96 4.50 34,814 0.45
(0.39) -- 0.02 9.96 4.24 48 0.70
(0.37) -- 0.02 9.97 3.98 695 0.95
- ------------------------------------------------------------------------------------------------
(0.42) -- 0.15 9.94 5.98 58,389 0.45
(0.40) -- 0.15 9.94 5.76 46 0.70
(0.37) -- 0.16 9.95 5.59 454 0.95
- ------------------------------------------------------------------------------------------------
</TABLE>
89
<PAGE>
SHORT DURATION TAX-FREE FUND (continued)
<TABLE>
<CAPTION>
Ratios assuming
no voluntary waiver
of fees or
expense limitations
---------------------
Ratio of Ratio of
net net
investment Ratio of investment
income expenses income Portfolio
to average to average to average turnover
net assets net assets net assets rate
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
For the Years Ended October 31,
1999 - Class A Shares 3.37% 1.06% 3.10% 147.20%
1999 - Class B Shares 2.80 1.81 2.38 147.20
1999 - Class C Shares 2.62 1.81 2.35 147.20
1999 - Institutional Shares 3.79 0.66 3.52 147.20
1999 - Administration Sharesf 3.56c 0.91c 3.29c 147.20
1999 - Service Shares 3.23 1.16 2.96 147.20
- ----------------------------------------------------------------------------
1998 - Class A Shares 3.54 1.74 2.51 140.72
1998 - Class B Shares 3.06 2.27 2.10 140.72
1998 - Class C Shares 2.82 2.27 2.01 140.72
1998 - Institutional Shares 3.92 1.26 3.11 140.72
1998 - Administration Shares 3.58 1.51 2.77 140.72
1998 - Service Shares 3.44 1.76 2.63 140.72
- ----------------------------------------------------------------------------
1997 - Class A Shares (commenced
May 1) 3.81c 1.73c 2.78c 194.75
1997 - Class B Shares (commenced
May 1) 3.31c 2.23c 2.38c 194.75
1997 - Class C Shares (commenced
August 15) 2.60c 2.23c 1.82c 194.75
1997 - Institutional Shares 4.18 1.23 3.40 194.75
1997 - Administration Shares 3.91 1.48 3.13 194.75
1997 - Service Shares 3.66 1.73 2.88 194.75
- ----------------------------------------------------------------------------
1996 - Institutional Shares 4.21 1.01 3.65 231.65
1996 - Administration Shares 3.96 1.26 3.40 231.65
1996 - Service Shares 3.74 1.51 3.18 231.65
- ----------------------------------------------------------------------------
1995 - Institutional Shares 4.31 0.77 3.99 259.52
1995 - Administration Shares 4.14 1.02 3.82 259.52
1995 - Service Shares 3.87 1.27 3.55 259.52
- ----------------------------------------------------------------------------
</TABLE>
(a) Includes the balancing effect of calculating per share amounts.
(b) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all distributions, a complete redemption of the investment
at the net asset value at the end of period and no sales charge. Total
return would be reduced if a sales or redemption charge were taken into
account.
(c) Annualized.
(d) Not annualized.
(e) Calculated based on the average shares outstanding methodology.
(f) Administration Shares were liquidated on July 20, 1999. Ending net asset
value shown as of July 20, 1999.
90
<PAGE>
[This page intentionally left blank]
91
<PAGE>
GOVERNMENT INCOME FUND
<TABLE>
<CAPTION>
Income (loss) from
investment operationsa
-------------------------
Net asset
value, Net Net realized
beginning investment and unrealized
of period income gain (loss)
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
For the Years Ended October 31,
1999 - Class A Shares $14.91 $0.80 $(0.89)
1999 - Class B Shares 14.92 0.69 (0.87)
1999 - Class C Shares 14.91 0.69 (0.88)
1999 - Institutional Shares 14.90 0.85 (0.88)
1999 - Service Shares 14.88 0.77 (0.92)
- ----------------------------------------------------------------------------
1998 - Class A Shares 14.59 0.81 0.45
1998 - Class B Shares 14.61 0.72 0.42
1998 - Class C Shares 14.60 0.74 0.40
1998 - Institutional Shares 14.59 0.87 0.42
1998 - Service Shares 14.59 0.80 0.40
- ----------------------------------------------------------------------------
1997 - Class A Shares 14.36 0.91 0.29
1997 - Class B Shares 14.37 0.80 0.30
1997 - Class C Shares (commenced August
15) 14.38 0.17 0.22
1997 - Institutional Shares (commenced
August 15) 14.37 0.20 0.22
1997 - Service Shares (commenced August
15) 14.37 0.20 0.21
- ----------------------------------------------------------------------------
1996 - Class A Shares 14.47 0.92 (0.11)
1996 - Class B Shares (commenced May 1) 14.11 0.41 0.26
- ----------------------------------------------------------------------------
1995 - Class A Shares 13.47 0.94 1.00
- ----------------------------------------------------------------------------
</TABLE>
(a) Includes the balancing effect of calculating per share amounts.
(b) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all distributions, a complete redemption of the investment
at the net asset value at the end of the period and no sales charge. Total
return would be reduced if a sales or redemption charge were taken into
account.
(c) Annualized.
(d) Not annualized.
(e) Includes the effect of mortgage dollar roll transactions.
92
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Distributions to shareholders
---------------------------------------
Net
In excess increase Net asset Net assets
From net of net (decrease) value, at end of
investment investment From net in net end Total period
income income realized gains asset value of period returnb (in 000s)
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$(0.77) $ -- $(0.35) $(1.21) $13.70 (0.63)% $ 82,102
(0.67) -- (0.35) (1.20) 13.72 (1.29) 19,684
(0.66) -- (0.35) (1.20) 13.71 (1.29) 10,053
(0.83) -- (0.35) (1.21) 13.69 (0.23) 5,899
(0.75) -- (0.35) (1.25) 13.63 (1.01) 15
---------------------------------------------------------------------------------
(0.81) (0.07) (0.06) 0.32 14.91 8.98 101,015
(0.72) (0.05) (0.06) 0.31 14.92 8.09 16,125
(0.74) (0.03) (0.06) 0.31 14.91 8.09 9,639
(0.87) (0.05) (0.06) 0.31 14.90 9.19 2,642
(0.80) (0.05) (0.06) 0.29 14.88 8.53 2
---------------------------------------------------------------------------------
(0.90) -- (0.07) 0.23 14.59 8.72 68,859
(0.79) -- (0.07) 0.24 14.61 7.96 8,041
(0.17) -- -- 0.22 14.60 2.72d 1,196
(0.20) -- -- 0.22 14.59 2.94d 1,894
(0.19) -- -- 0.22 14.59 2.85d 2
---------------------------------------------------------------------------------
(0.92) -- -- (0.11) 14.36 5.80 30,603
(0.41) -- -- 0.26 14.37 4.85d 234
---------------------------------------------------------------------------------
(0.94) -- -- 1.00 14.47 14.90 29,503
---------------------------------------------------------------------------------
</TABLE>
93
<PAGE>
GOVERNMENT INCOME FUND (continued)
<TABLE>
<CAPTION>
Ratios assuming no
voluntary waiver of fees
or expense limitations
-----------------------------
Ratio of
net Ratio of net
Ratio of investment Ratio of investment
net expenses income expenses income Portfolio
to average to average to average to average turnover
net assets net assets net assets net assets rate e
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
For the Years Ended October 31,
1999 - Class A Shares 0.98% 5.63% 1.33% 5.28% 277.64%
1999 - Class B Shares 1.73 4.88 2.08 4.53 277.64
1999 - Class C Shares 1.73 4.89 2.08 4.54 277.64
1999 - Institutional Shares 0.58 6.07 0.93 5.72 277.64
1999 - Service Shares 1.08 5.56 1.43 5.21 277.64
- ----------------------------------------------------------------------------------------------------
1998 - Class A Shares 0.76 5.53 1.53 4.76 315.43
1998 - Class B Shares 1.51 4.76 2.05 4.22 315.43
1998 - Class C Shares 1.51 4.59 2.05 4.05 315.43
1998 - Institutional Shares 0.51 5.82 1.05 5.28 315.43
1998 - Service Shares 1.01 5.48 1.55 4.94 315.43
- ----------------------------------------------------------------------------------------------------
1997 - Class A Shares 0.50 6.38 1.82 5.06 395.75
1997 - Class B Shares 1.25 5.59 2.32 4.52 395.75
1997 - Class C Shares
(commenced August 15) 1.25c 5.45c 2.32c 4.38c 395.75
1997 - Institutional Shares
(commenced August 15) 0.25c 7.03c 1.32c 5.96c 395.75
1997 - Service Shares
(commenced August 15) 0.75c 6.49c 1.82c 5.42c 395.75
- ----------------------------------------------------------------------------------------------------
1996 - Class A Shares 0.50 6.42 1.89 5.03 485.09
1996 - Class B Shares
(commenced May 1) 1.25c 5.65c 2.39c 4.51c 485.09
- ----------------------------------------------------------------------------------------------------
1995 - Class A Shares 0.47 6.67 2.34 4.80 449.53
- ----------------------------------------------------------------------------------------------------
</TABLE>
(a) Includes the balancing effect of calculating per share amounts.
(b) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all distributions, a complete redemption of the investment
at the net asset value at the end of the period and no sales charge. Total
return would be reduced if a sales or redemption charge were taken into
account.
(c) Annualized.
(d) Not annualized.
(e) Includes the effect of mortgage dollar roll transactions.
94
<PAGE>
[This page intentionally left blank]
95
<PAGE>
MUNICIPAL INCOME FUND
<TABLE>
<CAPTION>
Income (loss) from
investment operationsa
-------------------------
Net realized
and unrealized
Net asset gain (loss) on
value, Net investment
beginning investment and futures
of period income transactions
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
For the Years Ended October 31,
1999 - Class A Shares $15.47 $0.63 $(1.29)
1999 - Class B Shares 15.47 0.51 (1.28)
1999 - Class C Shares 15.47 0.51 (1.28)
1999 - Institutional Shares 15.47 0.70 (1.30)
1999 - Service Shares 15.48 0.65 (1.32)
- ----------------------------------------------------------------------------
1998 - Class A Shares 14.99 0.65 0.50
1998 - Class B Shares 15.00 0.53 0.49
1998 - Class C Shares 14.99 0.53 0.50
1998 - Institutional Shares 15.00 0.68 0.50
1998 - Service Shares 14.99 0.64 0.49
- ----------------------------------------------------------------------------
1997 - Class A Shares 14.37 0.67 0.62
1997 - Class B Shares 14.37 0.56 0.63
1997 - Class C Shares (commenced August
15) 14.85 0.12 0.14
1997 - Institutional Shares (commenced
August 15) 14.84 0.15 0.16
1997 - Service Shares (commenced August
15) 14.84 0.14 0.15
- ----------------------------------------------------------------------------
1996 - Class A Shares 14.17 0.65 0.20
1997 - Class B Shares (commenced May 1) 14.03 0.27 0.34
- ----------------------------------------------------------------------------
1995 - Class A Shares 13.08 0.67 1.09
- ----------------------------------------------------------------------------
</TABLE>
(a) Includes the balancing effect of calculating per share amounts.
(b) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all distributions, a complete redemption of the investment
at the net asset value at the end of the period and no sales charge. Total
return would be reduced if a sales or redemption charge were taken into
account.
(c) Annualized.
(d) Not annualized.
96
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Distributions to shareholders
-------------------------------------
From
net realized Net
From In excess gain on increase Net assets Ratio of
net of net investment (decrease) Net asset at end of net expenses
investment investment and futures in net value, Total period to average
income income transactions asset value end of period returnb (in 000s) net assets
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$(0.65) $ -- $(0.09) $(1.40) $14.07 (4.46)% $90,443 0.94%
(0.52) (0.01) (0.09) (1.39) 14.08 (5.10) 9,334 1.69
(0.51) (0.02) (0.09) (1.39) 14.08 (5.10) 4,379 1.69
(0.70) (0.01) (0.09) (1.40) 14.07 (4.07) 16,197 0.54
(0.63) -- (0.09) (1.39) 14.09 (4.49) 2 1.04
- -------------------------------------------------------------------------------------------------
(0.64) -- (0.03) 0.48 15.47 7.79 91,158 0.87
(0.52) -- (0.03) 0.47 15.47 6.91 6,722 1.62
(0.52) -- (0.03) 0.48 15.47 6.98 2,862 1.62
(0.68) -- (0.03) 0.47 15.47 8.00 6,154 0.58
(0.61) -- (0.03) 0.49 15.48 7.68 2 1.08
- -------------------------------------------------------------------------------------------------
(0.67) -- -- 0.62 14.99 9.23 64,553 0.85
(0.56) -- -- 0.63 15.00 8.48 1,750 1.60
(0.12) -- -- 0.14 14.99 1.75d 130 1.60c
(0.15) -- -- 0.16 15.00 2.10d 351 0.60c
(0.14) -- -- 0.15 14.99 1.93d 2 1.10c
- -------------------------------------------------------------------------------------------------
(0.65) -- -- 0.20 14.37 6.13 52,267 0.85
(0.27) -- -- 0.34 14.37 4.40d 255 1.60c
- -------------------------------------------------------------------------------------------------
(0.67) -- -- 1.09 14.17 13.79 53,797 0.76
- -------------------------------------------------------------------------------------------------
</TABLE>
97
<PAGE>
MUNICIPAL INCOME FUND (continued)
<TABLE>
<CAPTION>
Ratios assuming no
voluntary waiver of fees
or expense limitations
------------------------------
Ratio of net Ratio of net
investment Ratio of investment
income expenses income Portfolio
to average to average to average turnover
net assets net assets net assets rate
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
For the Years Ended October 31,
1999 - Class A Shares 4.15% 1.14% 3.95% 70.31%
1999 - Class B Shares 3.40 1.89 3.20 70.31
1999 - Class C Shares 3.40 1.89 3.20 70.31
1999 - Institutional Shares 4.58 0.74 4.38 70.31
1999 - Service Shares 4.35 1.24 4.15 70.31
- ------------------------------------------------------------------------------------------
1998 - Class A Shares 4.25 1.64 3.48 56.51
1998 - Class B Shares 3.44 2.16 2.90 56.51
1998 - Class C Shares 3.38 2.16 2.84 56.51
1998 - Institutional Shares 4.41 1.12 3.87 56.51
1998 - Service Shares 4.21 1.62 3.67 56.51
- ------------------------------------------------------------------------------------------
1997 - Class A Shares 4.60 1.62 3.83 153.12
1997 - Class B Shares 3.74 2.12 3.22 153.12
1997 - Class C Shares
(commenced August 15) 3.24c 2.12c 2.72c 153.12
1997 - Institutional Shares
(commenced August 15) 4.41c 1.12c 3.89c 153.12
1997 - Service Shares
(commenced August 15) 4.24c 1.62c 3.72c 153.12
- ------------------------------------------------------------------------------------------
1996 - Class A Shares 4.58 1.55 3.88 344.13
1996 - Class B Shares
(commenced May 1) 3.55c 2.05c 3.10c 344.13
- ------------------------------------------------------------------------------------------
1995 - Class A Shares 4.93 1.49 4.20 335.55
- ------------------------------------------------------------------------------------------
</TABLE>
(a) Includes the balancing effect of calculating per share amounts.
(b) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all distributions, a complete redemption of the investment
at the net asset value at the end of the period and no sales charge. Total
return would be reduced if a sales or redemption charge were taken into
account.
(c) Annualized.
(d) Not annualized.
98
<PAGE>
[This page intentionally left blank]
99
<PAGE>
CORE FIXED INCOME FUND
<TABLE>
<CAPTION>
Income (loss) from
investment operationsa
-------------------------
Net asset
value, Net Net realized
beginning investment and unrealized
of period income gains (loss)
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
For the Years Ended October 31,
1999-Class A Shares $10.25 $0.54 $(0.61)
1999-Class B Shares 10.28 0.48 (0.62)
1999-Class C Shares 10.28 0.47 (0.62)
1999-Institutional Shares 10.28 0.58 (0.62)
1999-Administration Sharesg 10.27 0.40f (0.41)f
1999-Service Shares 10.28 0.54 (0.62)
- ------------------------------------------------------------------------------
1998-Class A Shares 10.06 0.59 0.27
1998-Class B Shares 10.09 0.52 0.27
1998-Class C Shares 10.09 0.52 0.27
1998-Institutional Shares 10.08 0.61 0.29
1998-Administration Shares 10.07 0.57 0.29
1998-Service Shares 10.09 0.56 0.27
- ------------------------------------------------------------------------------
1997-Class A Shares (commenced May 1) 9.70 0.30 0.36
1997-Class B Shares (commenced May 1) 9.72 0.27 0.37
1997-Class C Shares (commenced August 15) 9.93 0.11 0.16
1997-Institutional Shares 9.85 0.64 0.23
1997-Administration Shares 9.84 0.62 0.23
1997-Service Shares 9.86 0.59 0.23
- ------------------------------------------------------------------------------
1996-Institutional Shares 10.00 0.64 (0.07)
1996-Administrative Shares (commenced
February 28) 9.91 0.41 (0.07)
1996-Service Shares (commenced March 13) 9.77 0.38 0.09
- ------------------------------------------------------------------------------
1995-Institutional Shares 9.24 0.64 0.76
- ------------------------------------------------------------------------------
</TABLE>
(a) Includes the balancing effect of calculating per share amounts.
(b) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all distributions, a complete redemption of the investment
at the net asset value at the end of period and no sales charge. Total
return would be reduced if a sales or redemption charge were taken into
account.
(c) Annualized.
(d) Not annualized.
(e) Includes the effect of mortgage dollar roll transactions.
(f) Calculated based on average shares outstanding methodology.
(g) Administration Shares were liquidated on July 20, 1999. Ending net asset
value shown as of July 20, 1999.
100
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Distributions to shareholders
---------------------------------
Net
increase Net Net assets Ratio of
In excess (decrease) asset at end net
From net of net From net in net value, of expenses
investment investment realized asset end of Total period to average
income income gains value period returnb (in 000s) net assets
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$(0.53) $ -- $(0.15) $(0.75) $ 9.50 (0.68)% $ 65,368 0.94%
(0.47) -- (0.15) (0.76) 9.52 (1.47) 14,654 1.69
(0.46) -- (0.15) (0.76) 9.52 (1.51) 7,443 1.69
(0.57) -- (0.15) (0.76) 9.52 (0.37) 216,973 0.54
(0.40) -- (0.15) (0.56) 9.71g (0.13)d -- 0.79c
(0.53) -- (0.15) (0.76) 9.52 (0.87) 8,172 1.04
- ------------------------------------------------------------------------------------
(0.59) (0.02) (0.06) 0.19 10.25 8.76 56,267 0.74
(0.52) (0.02) (0.06) 0.19 10.28 7.94 7,209 1.49
(0.52) (0.02) (0.06) 0.19 10.28 7.94 5,587 1.49
(0.61) (0.03) (0.06) 0.20 10.28 9.15 195,730 0.46
(0.57) (0.03) (0.06) 0.20 10.27 8.88 12,743 0.71
(0.56) (0.02) (0.06) 0.19 10.28 8.50 5,263 0.96
- ------------------------------------------------------------------------------------
(0.30) -- -- 0.36 10.06 6.94d 9,336 0.70c
(0.27) -- -- 0.37 10.09 6.63d 621 1.45c
(0.11) -- -- 0.16 10.09 2.74d 272 1.45c
(0.64) -- -- 0.23 10.08 9.19 79,230 0.45
(0.62) -- -- 0.23 10.07 8.92 6,176 0.70
(0.59) -- -- 0.23 10.09 8.65 1,868 0.95
- ------------------------------------------------------------------------------------
(0.64) -- (0.08) (0.15) 9.85 5.98 72,061 0.45
(0.41) -- -- (0.07) 9.84 3.56d 702 0.70c
(0.38) -- -- 0.09 9.86 4.90d 381 0.95c
- ------------------------------------------------------------------------------------
(0.64) -- -- 0.76 10.00 15.72 55,502 0.45
- ------------------------------------------------------------------------------------
</TABLE>
101
<PAGE>
CORE FIXED INCOME FUND (continued)
<TABLE>
<CAPTION>
Ratios assuming no
voluntary waiver of
fees
or expense
limitations
---------------------
Ratio of Ratio of
net net
investment Ratio of investment
income expenses income Portfolio
to average to average to average turnover
net assets net assets net assets ratee
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
For the Years Ended October 31,
1999-Class A Shares 5.57% 0.98% 5.53% 279.67%
1999-Class B Shares 4.83 1.73 4.79 279.67
1999-Class C Shares 4.82 1.73 4.78 279.67
1999-Institutional Shares 5.97 0.58 5.93 279.67
1999-Administration Sharesg 5.63c 0.83c 5.59c 279.67
1999-Service Shares 5.50 1.08 5.46 279.67
- ---------------------------------------------------------------------------
1998-Class A Shares 5.58 1.21 5.11 271.50
1998-Class B Shares 4.82 1.75 4.56 271.50
1998-Class C Shares 4.81 1.75 4.55 271.50
1998-Institutional Shares 5.95 0.72 5.69 271.50
1998-Administration Shares 5.70 0.97 5.44 271.50
1998-Service Shares 5.44 1.22 5.18 271.50
- ---------------------------------------------------------------------------
1997-Class A Shares (commenced
May 1) 6.13c 1.33c 5.50c 361.27
1997-Class B Shares (commenced
May 1) 5.28c 1.83c 4.90c 361.27
1997-Class C Shares (commenced
August 15) 4.84c 1.83c 4.46c 361.27
1997-Institutional Shares 6.53 0.83 6.15 361.27
1997-Administration Shares 6.27 1.08 5.89 361.27
1997-Service Shares 6.00 1.33 5.62 361.27
- ---------------------------------------------------------------------------
1996-Institutional Shares 6.51 0.83 6.13 414.20
1996-Administrative Shares
(commenced February 28) 6.41c 1.08c 6.03c 414.20
1996-Service Shares (commenced
March 13) 6.37c 1.33c 5.99c 414.20
- ---------------------------------------------------------------------------
1995-Institutional Shares 6.56 0.96 6.05 382.26
</TABLE>
- --------------------------------------------------------------------------------
(a) Includes the balancing effect of calculating per share amounts.
(b) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all distributions, a complete redemption of the investment
at the net asset value at the end of period and no sales charge. Total
return would be reduced if a sales or redemption charge were taken into
account.
(c) Annualized.
(d) Not annualized.
(e) Includes the effect of mortgage dollar roll transactions.
(f) Calculated based on average shares outstanding methodology.
(g) Administration Shares were liquidated on July 20, 1999. Ending net asset
value shown as of July 20, 1999.
102
<PAGE>
[This page intentionally left blank]
103
<PAGE>
GLOBAL INCOME FUND
<TABLE>
<CAPTION>
Income (loss) from
investment operationsa
-------------------------
Net asset
value, Net Net realized
beginning investment and unrealized
of period income gain (loss)
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
For the Years Ended October 31,
1999 - Class A Shares $15.65 $0.62e $(0.78)e
1999 - Class B Shares 15.63 0.53 (0.78)
1999 - Class C Shares 15.60 0.53 (0.77)
1999 - Institutional Shares 15.64 0.71 (0.77)
1999 - Service Shares 15.64 0.64 (0.79)
- -------------------------------------------------------------------------------
1998 - Class A Shares 15.10 0.72e 0.90e
1998 - Class B Shares 15.08 0.63e 0.92e
1998 - Class C Shares 15.06 0.63e 0.91e
1998 - Institutional Shares 15.09 0.82e 0.90e
1998 - Service Shares 15.09 0.74e 0.91e
- -------------------------------------------------------------------------------
1997 - Class A Shares 14.53 0.59 0.77
1997 - Class B Shares 14.53 0.72 0.56
1997 - Class C Shares (commenced
August 15) 14.80 0.16 0.29
1997 - Institutional Shares 14.52 0.88 0.56
1997 - Service Shares (commenced March 12) 14.69 0.53 0.39
- -------------------------------------------------------------------------------
1996 - Class A Shares 14.45 0.71 0.80
1996 - Class B Shares (commenced May 1) 14.03 0.34 0.52
1996 - Institutional Shares 14.45 1.15 0.42
- -------------------------------------------------------------------------------
1995 - Class A Shares 13.43 0.89 1.07
1995 - Institutional Shares (commenced
August 1) 14.09 0.22 0.40
- -------------------------------------------------------------------------------
</TABLE>
(a) Includes the balancing effect of calculating per share amounts.
(b) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all distributions, a complete redemption of the investment
at the net asset value at the end of period and no sales charge. Total
return would be reduced if a sales or redemption charge were taken into
account.
(c) Annualized.
(d) Not annualized.
(e) Calculated based on the average shares outstanding methodology.
104
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Distributions to shareholders
- --------------------------------
Net
increase Net asset Net assets Ratio of
From net From (decrease) value, at end of net expenses
investment From net realized in net end of Total period to average
income capital gains asset value period returnb (in 000s) net assets
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$(0.61) $(0.03) $(0.36) $(1.16) $14.49 (1.14)% $271,832 1.34%
(0.55) (0.02) (0.36) (1.18) 14.45 (1.74) 16,724 1.84
(0.55) (0.02) (0.36) (1.17) 14.43 (1.68) 7,786 1.84
(0.71) (0.03) (0.36) (1.16) 14.48 (0.49) 279,621 0.69
(0.63) (0.03) (0.36) (1.17) 14.47 (1.06) 1,115 1.19
---------------------------------------------------------------------------------------
(1.01) -- (0.06) 0.55 15.65 11.21 217,362 1.31
(0.94) -- (0.06) 0.55 15.63 10.66 8,135 1.83
(0.94) -- (0.06) 0.54 15.60 10.65 4,090 1.83
(1.11) -- (0.06) 0.55 15.64 11.95 178,532 0.66
(1.04) -- (0.06) 0.55 15.64 11.43 1,058 1.16
---------------------------------------------------------------------------------------
(0.79) -- -- 0.57 15.10 9.66 167,096 1.17
(0.73) -- -- 0.55 15.08 9.04 3,465 1.71
(0.19) -- -- 0.26 15.06 3.03d 496 1.71c
(0.87) -- -- 0.57 15.09 10.26 60,929 0.65
(0.52) -- -- 0.40 15.09 6.42d 151 1.15c
---------------------------------------------------------------------------------------
(1.43) -- -- 0.08 14.53 11.05 198,665 1.16
(0.36) -- -- 0.50 14.53 6.24d 256 1.70c
(1.50) -- -- 0.07 14.52 11.55 54,254 0.65
---------------------------------------------------------------------------------------
(0.94) -- -- 1.02 14.45 15.08 245,835 1.29
(0.26) -- -- 0.36 14.45 4.42d 31,619 0.65c
---------------------------------------------------------------------------------------
</TABLE>
105
<PAGE>
GLOBAL INCOME FUND (continued)
<TABLE>
<CAPTION>
Ratios assuming no
voluntary waiver of fees
or expense limitations
------------------------------
Ratio of net Ratio of net
investment Ratio of investment
income expenses income Portfolio
to average to average to average turnover
net assets net assets net assets rate
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
For the Years Ended October 31,
1999 - Class A Shares 4.12% 1.72% 3.74% 158.27%
1999 - Class B Shares 3.60 2.22 3.22 158.27
1999 - Class C Shares 3.60 2.22 3.22 158.27
1999 - Institutional Shares 4.75 1.07 4.37 158.27
1999 - Service Shares 4.28 1.57 3.90 158.27
- ------------------------------------------------------------------------------------------
1998 - Class A Shares 4.71 1.75 4.27 229.91
1998 - Class B Shares 4.19 2.24 3.78 229.91
1998 - Class C Shares 4.20 2.24 3.79 229.91
1998 - Institutional Shares 5.40 1.07 4.99 229.91
1998 - Service Shares 4.92 1.57 4.51 229.91
- ------------------------------------------------------------------------------------------
1997 - Class A Shares 5.19 1.60 4.76 383.72
1997 - Class B Shares 4.76 2.10 4.37 383.72
1997 - Class C Shares
(commenced August 15) 4.98c 2.10c 4.59c 383.72
1997 - Institutional Shares 5.72 1.04 5.33 383.72
1997 - Service Shares
(commenced March 12) 5.33c 1.54c 4.94c 383.72
- ------------------------------------------------------------------------------------------
1996 - Class A Shares 5.81 1.64 5.33 232.15
1996 - Class B Shares
(commenced May 1) 5.16c 2.14c 4.72c 232.15
1996 - Institutional Shares 6.35 1.11 5.89 232.15
- ------------------------------------------------------------------------------------------
1995 - Class A Shares 6.23 1.58 5.94 265.86
1995 - Institutional Shares
(commenced August 1) 6.01c 1.08c 5.58c 265.86
- ------------------------------------------------------------------------------------------
</TABLE>
(a) Includes the balancing effect of calculating per share amounts.
(b) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all distributions, a complete redemption of the investment
at the net asset value at the end of period and no sales charge. Total
return would be reduced if a sales or redemption charge were taken into
account.
(c) Annualized.
(d) Not annualized.
(e) Calculated based on the average shares outstanding methodology.
106
<PAGE>
[This page intentionally left blank]
107
<PAGE>
HIGH YIELD FUND
<TABLE>
<CAPTION>
Income (loss) from investment
operationsa
-------------------------------
Net realized
and unrealized
Net asset gain (loss) on
value, Net investment and
beginning investment foreign currency
of period income related transactions
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
For the Years Ended October 31,
1999 - Class A Shares $ 9.16 $0.85 $(0.10)
1999 - Class B Shares 9.16 0.77 (0.09)
1999 - Class C Shares 9.16 0.78 (0.11)
1999 - Institutional Shares 9.17 0.90e (0.12)e
1999 - Service Shares 9.17 0.86e (0.12)e
- ---------------------------------------------------------------------------
1998 - Class A Shares 9.97 0.82 (0.85)
1998 - Class B Shares 9.97 0.75 (0.86)
1998 - Class C Shares 9.97 0.75 (0.86)
1998 - Institutional Shares 9.97 0.84 (0.83)
1998 - Service Shares 9.97 0.80 (0.84)
- ---------------------------------------------------------------------------
For the Period Ended October 31,
1997 - Class A Shares (commenced
August 1) 10.00 0.17 (0.02)
1997 - Class B Shares (commenced
August 1) 10.00 0.15 (0.02)
1997 - Class C Shares (commenced
August 15) 9.97 0.14 0.01
1997 - Institutional Shares
(commenced August 1) 10.00 0.18 (0.02)
1997 - Service Shares (commenced
August 1) 10.00 0.17 (0.02)
- ---------------------------------------------------------------------------
</TABLE>
(a) Includes the balancing effect of calculating per share amounts.
(b) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all distributions, a complete redemption of the investment
at the net asset value at the end of period and no sales charge. Total
return would be reduced if a sales or redemption charge was taken into
account.
(c) Annualized.
(d) Not annualized.
(e) Calculated based on the average shares outstanding methodology.
108
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Distributions to
shareholders
- ---------------------
From In excess Net assets Ratio of
net of net Net decrease Net asset at end of net expenses
investment investment in net value, end Total period to average
income income asset value of period returnb (in 000s) net assets
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$(0.84) $ -- $(0.09) $9.07 8.06% $524,674 1.16%
(0.76) -- (0.08) 9.08 7.38 39,907 1.91
(0.76) -- (0.09) 9.07 7.26 10,078 1.91
(0.87) -- (0.09) 9.08 8.49 257,498 0.76
(0.83) -- (0.09) 9.08 7.95 280 1.26
- ------------------------------------------------------------------------------
(0.78) -- (0.81) 9.16 (0.70) 401,626 1.09
(0.70) -- (0.81) 9.16 (1.43) 29,256 1.84
(0.70) -- (0.81) 9.16 (1.43) 8,532 1.84
(0.81) -- (0.80) 9.17 (0.32) 97,547 0.84
(0.76) -- (0.80) 9.17 (0.79) 447 1.34
- ------------------------------------------------------------------------------
(0.17) (0.01) (0.03) 9.97 1.50d 325,911 0.95c
(0.15) (0.01) (0.03) 9.97 1.31d 10,308 1.70c
(0.14) (0.01) -- 9.97 1.46d 1,791 1.70c
(0.18) (0.01) (0.03) 9.97 1.58d 2 0.70c
(0.17) (0.01) (0.03) 9.97 1.46d 2 1.20c
- ------------------------------------------------------------------------------
</TABLE>
109
<PAGE>
HIGH YIELD FUND (continued)
<TABLE>
<CAPTION>
Ratios assuming
no expense limitations
-------------------------
Ratio of Ratio of
net investment Ratio of net investment
income expenses income Portfolio
to average to average to average turnover
net assets net assets net assets rate
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
For the Years Ended October
31,
1999 - Class A Shares 9.06% 1.22% 9.00% 59.04%
1999 - Class B Shares 8.30 1.97 8.24 59.04
1999 - Class C Shares 8.26 1.97 8.20 59.04
1999 - Institutional Shares 9.50 0.82 9.44 59.04
1999 - Service Shares 8.92 1.32 8.86 59.04
- -------------------------------------------------------------------------------
1998 - Class A Shares 8.25 1.36 7.98 113.44
1998 - Class B Shares 7.61 1.88 7.57 113.44
1998 - Class C Shares 7.61 1.88 7.57 113.44
1998 - Institutional Shares 9.47 0.88 9.43 113.44
1998 - Service Shares 9.17 1.38 9.13 113.44
- -------------------------------------------------------------------------------
For the Period Ended
October 31,
1997 - Class A Shares
(commenced August 1) 7.06c 1.57c 6.44c 44.80d
1997 - Class B Shares
(commenced August 1) 6.28c 2.07c 5.91c 44.80d
1997 - Class C Shares
(commenced August 15) 6.17c 2.07c 5.80c 44.80d
1997 - Institutional Shares
(commenced August 1) 7.16c 1.07c 6.79c 44.80d
1997 - Service Shares
(commenced August 1) 6.69c 1.57c 6.32c 44.80d
- -------------------------------------------------------------------------------
</TABLE>
(a) Includes the balancing effect of calculating per share amounts.
(b) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all distributions, a complete redemption of the investment
at the net asset value at the end of period and no sales charge. Total
return would be reduced if a sales or redemption charge was taken into
account.
(c) Annualized.
(d) Not annualized.
(e) Calculated based on the average shares outstanding methodology.
110
<PAGE>
Index
<TABLE>
<C> <C> <S>
1 General Investment Management Approach
3 Fund Investment Objectives and Strategies
3 Goldman Sachs Adjustable Rate Government Fund
4 Goldman Sachs Short Duration Government Fund
5 Goldman Sachs Short Duration Tax-Free Fund
6 Goldman Sachs Government Income Fund
7 Goldman Sachs Municipal Income Fund
8 Goldman Sachs Core Fixed Income Fund
9 Goldman Sachs Global Income Fund
11 Goldman Sachs High Yield Municipal Fund
13 Goldman Sachs High Yield Fund
</TABLE>
<TABLE>
<C> <C> <S>
16 Other Investment
Practices and Securities
20 Principal Risks of the
Funds
25 Fund Performance
34 Fund Fees and Expenses
38 Service Providers
45 Dividends
47 Shareholder Guide
47 How to Buy Shares
51 How to Sell Shares
55 Taxation
58 Appendix A
Additional Information on
Portfolio Risks,
Securities and Techniques
80 Appendix B
Financial Highlights
</TABLE>
<PAGE>
Fixed Income Funds
Prospectus (Service Shares)
FOR MORE INFORMATION
Annual/Semi-annual Report
Additional information about the Funds' investments is available in the
Funds' annual and semi-annual reports to shareholders. In the Funds' annual
reports, you will find a discussion of the market conditions and investment
strategies that significantly affected the Funds' performance during the
last fiscal year.
Statement of Additional Information
Additional information about the Funds and their policies is also available
in the Funds' Additional Statement. The Additional Statement is incorporated
by reference into this Prospectus (is legally considered part of this Pro-
spectus).
The Funds' annual and semi-annual reports, and the Additional Statement, are
available free upon request by calling Goldman Sachs at 1-800-621-2550.
To obtain other information and for shareholder inquiries:
By telephone - Call 1-800-621-2550
By mail - Goldman, Sachs & Co., 4900 Sears Tower, Chicago, Illinois 60606-
6372
By e-mail - [email protected]
On the Internet - Text-only versions of the Funds' documents are located
online and may be downloaded from:
SEC EDGAR database - http://www.sec.gov
You may review and obtain copies of Fund documents by visiting the SEC's
Public Reference Room in Washington, D.C. You may also obtain copies of
Fund documents, after paying a duplicating fee, by writing to the SEC's
Public Reference Section, Washington, D.C. 20549-0102 or by electronic
request to: [email protected]. Information on the operation of the public
reference room may be obtained by calling the SEC at (202) 942-8090.
[LOGO OF GOLDMAN SACHS]
The Funds' investment company registration number is 811-5349.
505633
FIPROSVC
<PAGE>
PART B
STATEMENT OF ADDITIONAL INFORMATION
Class A Shares
Class B Shares
Class C Shares
Service Shares
Institutional Shares
GOLDMAN SACHS ADJUSTABLE RATE GOVERNMENT FUND
GOLDMAN SACHS SHORT DURATION GOVERNMENT FUND
GOLDMAN SACHS SHORT DURATION TAX-FREE FUND
GOLDMAN SACHS GOVERNMENT INCOME FUND
GOLDMAN SACHS MUNICIPAL INCOME FUND
GOLDMAN SACHS CORE FIXED INCOME FUND
GOLDMAN SACHS GLOBAL INCOME FUND
GOLDMAN SACHS HIGH YIELD MUNICIPAL FUND
GOLDMAN SACHS HIGH YIELD FUND
(Each a portfolio of Goldman Sachs Trust)
Goldman Sachs Trust
4900 Sears Tower
Chicago, Illinois 60606
This Statement of Additional Information (the "Additional Statement") is not a
prospectus. This Additional Statement describes each of the above-referenced
series of Goldman Sachs Trust. This Additional Statement should be read in
conjunction with the prospectuses for the Class A, Class B, Class C, Service and
Institutional Shares of Goldman Sachs Adjustable Rate Government Fund, Goldman
Sachs Short Duration Government Fund, Goldman Sachs Short Duration Tax-Free
Fund, Goldman Sachs Government Income Fund, Goldman Sachs Municipal Income Fund,
Goldman Sachs Core Fixed Income Fund, Goldman Sachs Global Income Fund, Goldman
Sachs High Yield Municipal Fund and Goldman Sachs High Yield Fund, each dated
March 1, 2000, as may be further amended and/or supplemented from time to time
(the "Prospectuses"). The Prospectuses may be obtained without charge from
Goldman, Sachs & Co. by calling the telephone number, or writing to one of the
addresses, listed below or from institutions ("Service Organizations") for the
benefit of their customers. Goldman Sachs Adjustable Rate Government Fund
currently does not offer Class B or Class C Shares.
The audited financial statements and related report of Arthur Andersen LLP,
former independent public accountants, for each Fund contained in each Fund's
1999 annual report is incorporated herein by reference in the section "Financial
Statements." No other portions of the Fund's Annual Report are incorporated
herein by reference. Ernst & Young LLP, independent public accountants, have
been selected as auditor's of the Funds of the Trust for the fiscal year ending
October 31, 2000.
The date of this Additional Statement is March 1, 2000.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
INTRODUCTION................................................................B-4
INVESTMENT OBJECTIVES AND POLICIES..........................................B-5
DESCRIPTION OF INVESTMENT SECURITIES AND PRACTICES.........................B-11
INVESTMENT RESTRICTIONS....................................................B-46
PORTFOLIO TRANSACTIONS.....................................................B-68
SHARES OF THE TRUST........................................................B-73
NET ASSET VALUE............................................................B-77
TAXATION...................................................................B-78
PERFORMANCE INFORMATION....................................................B-88
OTHER INFORMATION.........................................................B-107
FINANCIAL STATEMENTS......................................................B-108
OTHER INFORMATION REGARDING PURCHASES, REDEMPTIONS, EXCHANGES AND
DIVIDENDS.............................................................B-108
DISTRIBUTION AND SERVICE PLANS............................................B-111
SERVICE PLAN..............................................................B-119
APPENDIX A..................................................................1-A
APPENDIX B..................................................................1-B
APPENDIX C - (STATEMENT OF INTENTION AND ESCROW AGREEMENT)..................1-C
</TABLE>
B-2
<PAGE>
GOLDMAN SACHS ASSET MANAGEMENT GOLDMAN SACHS ASSET
Investment Adviser to Goldman Sachs MANAGEMENT INTERNATIONAL
Short Duration Tax-Free Fund, Investment Adviser to Goldman Sachs
Goldman Sachs Government Global Income Fund
Income Fund, Goldman Sachs 133 Peterborough Court
Municipal Income Fund, London EC4A 2BB, England
Goldman Sachs Core Fixed
Income Fund, Goldman Sachs GOLDMAN, SACHS & CO.
High Yield Municipal Fund Distributor
and Goldman Sachs High Yield Fund 85 Broad Street
32 Old Slip New York, NY 10004
New York, New York 10005
GOLDMAN, SACHS & CO.
GOLDMAN SACHS FUNDS Transfer Agent
MANAGEMENT, L.P. 4900 Sears Tower
Investment Adviser to Goldman Sachs Chicago, Illinois 60606
Adjustable Rate Government Fund
and Goldman Sachs Short Duration
Government Fund
32 Old Slip
New York, New York 10005
Toll free (in U.S.) .......800-621-2550
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INTRODUCTION
Goldman Sachs Trust (the "Trust") is an open-end, management investment
company. The Trust is organized as a Delaware business trust, and is a successor
to a Massachusetts business trust that was combined with the Trust on April 30,
1997. The Trustees of the Trust have authority under the Declaration of Trust to
create and classify shares into separate series and to classify and reclassify
any series of shares into one or more classes without further action by
shareholders. Pursuant thereto, the Trustees have created the following series,
among others: Goldman Sachs Adjustable Rate Government Fund ("Adjustable Rate
Government Fund"), Goldman Sachs Short Duration Government Fund ("Short Duration
Government Fund"), Goldman Sachs Short Duration Tax-Free Fund ("Short Duration
Tax-Free Fund"), Goldman Sachs Government Income Fund ("Government Income
Fund"), Goldman Sachs Municipal Income Fund ("Municipal Income Fund"), Goldman
Sachs Core Fixed Income Fund ("Core Fixed Income Fund"), Goldman Sachs Global
Income Fund ("Global Income Fund"), Goldman Sachs High Yield Municipal Fund
("High Yield Municipal Fund") and Goldman Sachs High Yield Fund ("High Yield
Fund") (each referred to herein as a "Fund" and collectively as the "Funds").
Each Fund other than the Global Income Fund [and High Yield Municipal Fund] is a
diversified, open-end management investment company. The Global Income Fund and
High Yield Municipal Fund are each a non-diversified open-end management
investment company. Short Duration Government Fund, Short Duration Tax-Free
Fund, Government Income Fund, Municipal Income Fund, CORE Fixed Income Global
Income Fund, High Yield Municipal Fund and High Yield Fund are authorized to
issue five classes of shares: Class A Shares, Class B Shares, Class C Shares,
Service Shares and Institutional Shares. Adjustable Rate Government Fund is
authorized to issue three classes of shares: Class A Shares, Service Shares, and
Institutional Shares. Additional series may be added in the future from time to
time.
Goldman Sachs Asset Management ("GSAM"), a unit of the Investment
Management Division of Goldman, Sachs & Co. ("Goldman Sachs"), serves as the
Investment Adviser to Short Duration Tax-Free Fund, Government Income Fund,
Municipal Income Fund, Core Fixed Income Fund, High Yield Municipal Fund and
High Yield Fund. Goldman Sachs Asset Management International ("GSAMI"), an
affiliate of Goldman Sachs, serves as Investment Adviser to the Global Income
Fund. Goldman Sachs Funds Management, L.P. ("GSFM"), an affiliate of Goldman
Sachs, serves as the Investment Adviser to Adjustable Rate Government Fund and
Short Duration Government Fund. GSAM, GSAMI and GSFM are each sometimes referred
to herein as the "Investment Adviser" and collectively herein as the "Investment
Advisers." In addition, Goldman Sachs serves as each Fund's distributor and
transfer agent. Each Fund's custodian is State Street Bank and Trust
Company.
Because each Fund's shares may be redeemed upon request of a
shareholder on any business day at net asset value, the Funds offer greater
liquidity than many competing investments, such as certificates of deposit and
direct investments in certain securities in which the respective Fund may
invest. However, unlike certificates of deposits, shares of the Funds are not
insured by the Federal Deposit Insurance Corporation.
The following information relates to and supplements the description of
each Fund's investment policies contained in the Prospectuses. See the
Prospectuses for a fuller description of each Fund's investment objective and
policies. Investing in the Funds entails certain risks and there is no assurance
that a Fund will achieve its objective. Capitalized terms used but not defined
herein have the same meaning as in the prospectuses.
Experienced Management. Successfully creating and managing a portfolio
----------------------
of securities requires professionals with extensive experience. Goldman Sachs'
highly skilled portfolio management team brings together many years of
experience in the analysis, valuation and trading of U.S. and foreign
fixed-income securities.
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INVESTMENT OBJECTIVES AND POLICIES
Adjustable Rate Government Fund and Short Duration Government Fund
Adjustable Rate Government Fund is designed for investors who seek a
high level of current income, consistent with low volatility of principal. The
Short Duration Government Fund is designed for investors who seek a high level
of current income and secondarily, in seeking current income, may also wish to
consider the potential for capital appreciation. Both Funds are appropriate for
investors who seek the high credit quality of securities issued or guaranteed by
the U.S. government, its agencies, instrumentalities or sponsored enterprises
("U.S. Government Securities"), without incurring the administrative and
accounting burdens involved in direct investment.
Market and economic conditions may affect the investments of Adjustable
Rate Government and Short Duration Government Funds differently than the
investments normally purchased by other types of fixed-income investors.
Relative to U.S. Treasury and non-fluctuating money market instruments, the
market value of adjustable rate mortgage securities in which Adjustable Rate and
Short Duration Government Funds may invest may be adversely affected by
increases in market interest rates. Conversely, decreases in market interest
rates may result in less capital appreciation for adjustable rate mortgage
securities in relation to U.S. Treasury and money market investments.
High Current Income. Adjustable Rate Government and Short Duration
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Government Funds seek a higher current yield than that offered by money market
funds or by bank certificates of deposit and money market accounts. However, the
Adjustable Rate and Short Duration Government Funds do not maintain a constant
net asset value per share and are subject to greater fluctuations in the value
of their shares than a money market fund. Unlike bank certificates of deposit
and money market accounts, investments in shares of the Funds are not insured or
guaranteed by any government agency. The Adjustable Rate and Short Duration
Government Funds each seek to provide such high current income without
sacrificing credit quality.
Relative Low Volatility of Principal. Adjustable Rate Government Fund
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seeks to minimize net asset value fluctuations by investing primarily in
adjustable rate mortgage pass-through securities and other mortgage securities
with periodic interest rate resets, maintaining a maximum duration of two years
and a target duration equal to that of a six-month to one-year U.S. Treasury
Security, and utilizing certain active management techniques to seek to hedge
interest rate risk. Short Duration Government Fund seeks to minimize net asset
value fluctuations by utilizing certain interest rate hedging techniques and by
maintaining a maximum duration of not more than three years. The duration target
of the Short Duration Government Fund is that of the 2-year U.S. Treasury
Security plus or minus 0.5 years. There is no assurance that these strategies
for the Adjustable Rate Government Fund and Short Duration Government Fund will
be successful.
Professional Management and Administration. Investors who invest in
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securities of the Government National Mortgage Association ("Ginnie Mae") and
other mortgage-backed securities may prefer professional management and
administration of their mortgage-backed securities portfolios. A
well-diversified portfolio of such securities emphasizing minimal fluctuation of
net asset value requires significant active management as well as significant
accounting and administrative resources. Members of Goldman Sachs' highly
skilled portfolio management team bring together many years of experience in the
analysis, valuation and trading of U.S. fixed-income securities.
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Government Income Fund
Government Income Fund is designed for investors who seek a high level
of current income, consistent with safety of principal and the high credit
quality of U.S. Government Securities, without incurring the administrative and
account burdens involved in direct investment.
Government Income Fund's overall returns are generally likely to move
in the opposite direction as interest rates. Therefore, when interest rates
decline, Government Income Fund's return is likely to increase. In exchange for
accepting a higher degree of share price fluctuation, investors have the
potential to achieve a higher return from the Government Income Fund than from
shorter-term investments.
High Current Income. Government Income Fund is designed to have a
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higher current yield than a money market fund, since it can invest in
longer-term, higher yielding securities, and may utilize certain investment
techniques not available to a money market fund. Similarly, Government Income
Fund's yield is expected to exceed that offered by bank certificates of deposit
and money market accounts. However, Government Income Fund does not maintain a
constant net asset value per share and is subject to greater fluctuation in the
value of its shares than a money market fund. Unlike bank certificates of
deposit and money market accounts, investments in shares of Government Income
Fund are not insured or guaranteed by any government agency. Government Income
Fund seeks to provide high current income without, however, sacrificing credit
quality.
Liquidity. Because Government Income Fund's shares may be redeemed upon
---------
request of a shareholder on any business day at net asset value, Government
Income Fund offers greater liquidity than many competing investments such as
certificates of deposit and direct investments in certain securities in which
Government Income Fund may invest.
A Sophisticated Investment Process. Government Income Fund's investment
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process starts with a review of trends for the overall economy as well as for
different sectors of the U.S. government and mortgage-backed securities markets.
Goldman Sachs' portfolio managers then analyze yield spreads, implied volatility
and the shape of the yield curve. In planning the Government Income Fund's
portfolio investment strategies, the Investment Adviser is able to draw upon the
economic and fixed-income research resources of Goldman Sachs. The Investment
Adviser will use a sophisticated analytical process involving Goldman Sachs'
proprietary mortgage prepayment model and option-adjusted spread model to
structure and maintain the Government Income Fund's investment portfolio. In
determining the Government Income Fund's investment strategy and in making
market timing decisions, the Investment Adviser will have access to information
from Goldman Sachs' economists, fixed-income analysts and mortgage specialists.
Convenience of a Fund Structure. Government Income Fund eliminates many
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of the complications that direct ownership of U.S. Government Securities and
mortgage-backed securities entails. Government Income Fund automatically
reinvests all principal payments within the Fund and distributes only current
income each month, thereby conserving principal and eliminating the investor's
need to segregate and reinvest the principal portion of each payment on his own.
Short Duration Tax-Free, Municipal Income and High Yield Municipal Funds
Short Duration Tax-Free Fund, Municipal Income Fund and the High Yield Municipal
Fund (the "Tax Exempt Funds") are not money market funds. The Short Duration
Tax-Free Fund is designed for investors who seek a high level of current income,
consistent with relatively low volatility of principal, that is exempt from
regular federal income tax. The Municipal Income Fund is designed for investors
who seek a high level of current income that is exempt from regular federal
income tax, consistent with preservation of capital. The High Yield Municipal
Fund is
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designed for investors who seek a high level of current income that is exempt
from regular federal income taxes as well as the potential for capital
appreciation. The Tax Exempt Funds are appropriate for investors who seek to
invest in fixed-income securities issued by or on behalf of states, territories
and possessions of the United States (including the District of Columbia) and
the political subdivisions, agencies and instrumentalities thereof ("Municipal
Securities") and who are able to accept greater risk with the possibility of
higher returns than investors in municipal money market funds. While municipal
money market funds almost always maintain a constant net asset value, they must
meet stringent high quality credit standards, their portfolios must be broadly
diversified and their portfolio securities must have remaining maturities of 397
days or less. An example of an "eligible" investment for the Tax Exempt Funds is
auction rate Municipal Securities, which generally have higher yields than money
market Municipal Securities, but which typically are not eligible investments
for municipal money market funds.
In addition, unlike a municipal money market fund, the Tax Exempt
Funds' increased investment flexibility permits their portfolios to be more
easily adjusted to reflect the shape of the current yield curve as well as to
respond to anticipated developments that might affect the shape of the yield
curve.
The Municipal Securities in which the Short Duration Tax-Free and
Municipal Income Funds invest will be rated, at the time of investment, at least
BBB or Baa by a nationally recognized statistical rating organization ("NRSRO")
or, if unrated, will be determined by the Investment Adviser to be of comparable
quality. Municipal Securities rated BBB or Baa are considered medium-grade
obligations with speculative characteristics, and adverse economic conditions or
changing circumstances may weaken their issuers' capability to pay interest and
repay principal. The Municipal Income Fund will have a weighted average credit
quality equal to A for securities rated by an NRSRO or, if unrated, determined
by the Investment Adviser to be of comparable quality. The High Yield Municipal
Fund will invest at least 65% of its total assets in high-yield Municipal
Securities rated, at the time of investment, BB or Ba or lower by a NRSRO or, if
unrated, will be determined by the Investment Adviser to be of comparable
quality. See also "High Yield Fund - Return on and Risks of High Yield
Securities." The credit rating assigned to Municipal Securities may reflect the
existence of guarantees, letters of credit or other credit enhancement features
available to the issuers or holders of such Municipal Securities.
Investors who wish to invest in Municipal Securities may find that a
mutual fund structure offers some important advantages when compared to
investing in individual Municipal Securities, including:
. The ratings given to Municipal Securities by the rating
organizations are difficult to evaluate. For example, some
Municipal Securities with relatively low credit ratings have
yields comparable to Municipal Securities with much higher
ratings. The credit research professionals at Goldman Sachs
closely follow market events and are well positioned to
judge current and expected credit conditions of municipal
issuers;
. Because of the relative inefficiency of the secondary market
in Municipal Securities, the value of an individual
municipal security is often difficult to determine. As such,
investors may obtain a wide range of different prices when
asking for quotes from different dealers. In addition, a
dealer may have a large inventory of a particular issue that
it wants to reduce. Obtaining the best overall prices can
require extensive negotiation, which is a function performed
by the portfolio manager;
. Market expertise is also an important consideration for
municipal investors, and because the Tax Exempt Funds take
relatively large positions in different securities, the Tax
Exempt Funds may be able to obtain more favorable prices in
the Municipal Securities market than investors with
relatively small positions; and
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. Industry and geographical diversification are important
considerations for municipal investors. The Tax Exempt Funds
are designed to provide this diversification.
Core Fixed Income Fund
Core Fixed Income Fund is designed for investors seeking a total return
consisting of capital appreciation and income that exceeds the total return of
the Lehman Brothers Aggregate Bond Index (the "Index"), without incurring the
administrative and accounting burdens involved in direct investment. Such
investors also prefer liquidity, experienced professional management and
administration, a sophisticated investment process, and the convenience of a
mutual fund structure. Core Fixed Income Fund may be appropriate as part of a
balanced investment strategy consisting of stocks, bonds and cash or as a
complement to positions in other types of fixed-income investments.
The Index currently includes U.S. Government Securities and fixed-rate,
publicly issued, U.S. dollar-denominated fixed-income securities rated at least
BBB or Baa by a NRSRO. Securities rated BBB or Baa are considered medium-grade
obligations with speculative characteristics, and adverse economic conditions or
changing circumstances may weaken their issuers' capability to pay interest and
repay principal. The securities currently included in the Index have at least
one year remaining to maturity; have an outstanding principal amount of at least
$100 million; and are issued by the following types of issuers, with each
category receiving a different weighting in the Index: U.S. Treasury; agencies,
authorities or instrumentalities of the U.S. government; issuers of
mortgage-backed securities; utilities; industrial issuers; financial
institutions; foreign issuers; and issuers of asset-backed securities. In
pursuing its investment objective, the Fund uses the Index as its performance
benchmark, but the Fund will not attempt to replicate the Index. The Fund may,
therefore, invest in securities that are not included in the Index. The Index is
a trademark of Lehman Brothers. Inclusion of a security in the Index does not
imply an opinion by Lehman Brothers as to its attractiveness or appropriateness
for investment. Although Lehman Brothers obtains factual information used in
connection with the Index from sources which it considers reliable, Lehman
Brothers claims no responsibility for the accuracy, completeness or timeliness
or such information and has no liability to any person for any loss arising from
results obtained from the use of the Index data.
Core Fixed Income Fund's overall returns are generally likely to move
in the opposite direction from interest rates. Therefore, when interest rates
decline, Core Fixed Income Fund's return is likely to increase. Conversely, when
interest rates increase, Core Fixed Income Fund's return is likely to decline.
However, the Investment Adviser believes that, given the flexibility of managers
to invest in a diversified portfolio of securities, Core Fixed Income Fund's
return is not likely to decline as quickly as that of other fixed-income funds
with a comparable average portfolio duration. In exchange for accepting a higher
degree of potential share price fluctuation, investors have the opportunity to
achieve a higher return from Core Fixed Income Fund than from shorter-term
investments.
A number of investment strategies will be used to achieve the Core
Fixed Income Fund's investment objective, including market sector selection,
determination of yield curve exposure, and issuer selection. In addition, the
Investment Adviser will attempt to take advantage of pricing inefficiencies in
the fixed-income markets. Market sector selection is the underweighting or
overweighting of one or more of the five market sectors (i.e., U.S. Treasuries,
U.S. government agencies, corporate securities, mortgage-backed securities and
asset-backed securities) in which the Fund primarily invests. The decision to
overweight or underweight a given market sector is based on expectations of
future yield spreads between different sectors. Yield curve exposure strategy
consists of overweighting or underweighting different maturity sectors to take
advantage of the shape of the yield curve. Issuer selection is the purchase and
sale of corporate securities based on a corporation's current and expected
credit standing. To take advantage of price discrepancies between securities
resulting from supply and demand imbalances or other technical factors, the Fund
may simultaneously purchase and sell comparable, but not identical, securities.
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The Investment Adviser will usually have access to the research of, and
proprietary technical models developed by, Goldman Sachs and will apply
quantitative and qualitative analysis in determining the appropriate allocations
among the categories of issuers and types of securities.
A Sophisticated Investment Process. Core Fixed Income Fund will attempt
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to control its exposure to interest rate risk, including overall market exposure
and the spread risk of particular sectors and securities, through active
portfolio management techniques. Core Fixed Income Fund's investment process
starts with a review of trends for the overall economy as well as for different
sectors of the fixed-income securities markets. Goldman Sachs' portfolio
managers then analyze yield spreads, implied volatility and the shape of the
yield curve. In planning Core Fixed Income Fund's portfolio investment
strategies, the Investment Adviser is able to draw upon the economic and
fixed-income research resources of Goldman Sachs. The Investment Adviser will
use a sophisticated analytical process including Goldman Sachs' proprietary
mortgage prepayment model and option-adjusted spread model to assist in
structuring and maintaining Core Fixed Income Fund's investment portfolio. In
determining Core Fixed Income Fund's investment strategy and making market
timing decisions, the Investment Adviser will have access to input from Goldman
Sachs' economists, fixed-income analysts and mortgage specialists.
Global Income Fund
Global Income Fund is designed for investors seeking high total return,
emphasizing current income and, to a lesser extent, opportunities for capital
appreciation. However, investing in the Fund involves certain risks, and there
is no assurance that the Fund will achieve its investment objective. The
securities in which the Fund invests will be rated, at the time of investment,
at least BBB or Baa by an NRSRO or, if unrated, will be determined by the
Investment Adviser to be of comparable quality. However, at least 50% of the
Fund's total assets will be invested in securities having a rating from an NRSRO
of AAA or Aaa at the time of investment. Securities rated BBB or Baa are
considered medium-grade obligations with speculative characteristics, and
adverse economic conditions or changing circumstances may weaken their issuers'
capability to pay interest and repay principal.
In selecting securities for the Fund, portfolio managers consider such
factors as the security's duration, sector and credit quality rating as well as
the security's yield and prospects for capital appreciation. In determining the
countries and currencies in which the Fund will invest, the Fund's portfolio
managers form opinions based primarily on the views of Goldman Sachs' economists
as well as information provided by securities dealers, including information
relating to factors such as interest rates, inflation, monetary and fiscal
policies, taxation, and political climate. The portfolio managers apply the
Black-Litterman Model (the "Model") to their views to develop a portfolio that
produces, in the view of the Investment Adviser, the optimal expected return for
a given level of risk. The Model factors in the opinions of the portfolio
managers, adjusting for their level of confidence in such opinions, with the
views implied by an international capital asset pricing formula. The Model is
also used to maintain the level of portfolio risk within the guidelines
established by the Investment Adviser.
High Income. Global Income Fund's portfolio managers will seek out the
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highest yielding bonds in the global fixed-income market that meet the Global
Income Fund's credit quality standards and certain other criteria.
Capital Appreciation. Investing in the foreign bond markets offers the
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potential for capital appreciation due to both interest rate and currency
exchange rate fluctuations. The portfolio managers attempt to identify
investments with appreciation potential by carefully evaluating trends affecting
a country's currency as well as a country's fundamental economic strength.
However, there is a risk of capital depreciation as a result of unanticipated
interest rate and currency fluctuations.
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Portfolio Management Flexibility. Global Income Fund is actively
--------------------------------
managed. The Fund's portfolio managers invest in countries that, in their
judgment, meet the Fund's investment guidelines and often have strong currencies
and stable economies and in securities that they believe offer favorable
performance prospects.
Relative Stability of Principal. Global Income Fund may be able to
-------------------------------
reduce principal fluctuation by investing in foreign countries with economic
policies or business cycles different from those of the United States and in
foreign securities markets that do not necessarily move in the same direction or
magnitude as the U.S. market. Investing in a broad range of U.S. and foreign
fixed-income securities and currencies reduces the dependence of the Fund's
performance on developments in any particular market to the extent that adverse
events in one market are offset by favorable events in other markets. The Fund's
policy of investing primarily in high quality securities may also reduce
principal fluctuation. However, there is no assurance that these strategies will
always be successful.
Professional Management. Individual U.S. investors may prefer
-----------------------
professional management of their global bond and currency portfolios because a
well-diversified portfolio requires a large amount of capital and because the
size of the global market requires access to extensive resources and a
substantial commitment of time.
High Yield Fund
High Yield Fund's Investment Process. The High Yield Fund is
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appropriate for investors who seek a high level of current income and who also
may wish to consider the potential for capital appreciation. A number of
investment strategies are used to seek to achieve the Fund's investment
objective, including market sector selection, determination of yield curve
exposure, and issuer selection. In addition, the Investment Adviser will attempt
to take advantage of pricing inefficiencies in the fixed-income markets. GSAM
starts the investment process with economic analysis based on research generated
by the Goldman Sachs Global Economic Research Group and others to determine
broad growth trends, industry-specific events and market forecasts. The market
value of non-investment grade fixed-income securities tends to reflect
individual developments within a company to a greater extent than higher rated
corporate debt or Treasury bonds that react primarily to fluctuations in
interest rates. Therefore, determining the creditworthiness of issuers is
critical. To that end, the High Yield Fund's portfolio managers have access to
Goldman Sachs highly regarded Credit Research and Global Investment Research
Departments, as well as analysis from the firm's High Yield Research Group, a
dedicated group of 13 professionals in the high yield and emerging market
corporate bond research area, consisting of industry and regional market
specialists. In addition, the Fund's portfolio managers may review the opinions
of the two largest independent credit rating agencies, Standard & Poor's Ratings
Group ("Standard & Poor's") and Moody's Investors Services, Inc. ("Moody's").
High Yield Fund's portfolio managers and credit analysts also conduct their own
in-depth analysis of each issue considered for inclusion in the Fund's
portfolio. The portfolio managers and credit analysts evaluate such factors as a
company's competitive position, the strength of its balance sheet, its ability
to withstand economic downturns and its potential to generate ample cash flow to
service its debt. The ability to analyze accurately a company's future cash flow
by correctly anticipating the impact of economic, industry-wide and specific
events are critical to successful high yield investing. GSAM's goal is to
identify companies with the potential to strengthen their balance sheets by
increasing their earnings, reducing their debt or effecting a turnaround. GSAM
analyzes trends in a company's debt picture (i.e., the level of its interest
coverage) as well as new developments in its capital structure on an ongoing
basis. GSAM believes that this ongoing reassessment is more valuable than
relying on a "snapshot" view of a company's ability to service debt at one or
two points in time.
High Yield Fund's portfolio is diversified among different sectors and
industries on a global basis in an effort to reduce overall risk. While GSAM
will avoid excessive concentration in any one industry, the Fund's specific
industry weightings are the result of individual security selection. Emerging
market debt considered for the High Yield Fund's portfolio will be selected by
specialists knowledgeable about the political and economic structure of those
economies.
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Return on and Risks of High Yield Securities. High yield bonds can
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deliver higher yields and total return than either investment grade corporate
bonds or U.S. Treasury bonds. However, because these non-investment grade
securities involve higher risks in return for higher income, they are best
suited to long-term investors who are financially secure enough to withstand
volatility and the risks associated with such investments. See "Description of
Investment Securities and Practices." Different types of fixed income securities
may react differently to changes in the economy. High yield bonds, like stocks,
tend to perform best when the economy is strong, inflation is low and companies
experience healthy profits, which can lead to higher stock prices and higher
credit ratings. Government bonds are likely to appreciate more in a weaker
economy when interest rates are declining. In certain types of markets, adding
some diversification in the high yield asset class may help to increase returns
and decrease overall portfolio risk.
For high yield, non-investment grade securities, as for most
investments, there is a direct relationship between risk and return. Along with
their potential to deliver higher yields and greater capital appreciation than
most other types of fixed income securities, high yield securities are subject
to higher risk of loss, greater volatility and are considered speculative by
traditional investment standards. The most significant risk associated with high
yield securities is credit risk: the risk that the company issuing a high yield
security may have difficulty in meeting its principal and/or interest payments
on a timely basis. As a result, extensive credit research and diversification
are essential factors in managing risk in the high yield arena. To a lesser
extent, high yield bonds are also subject to interest rate risk: when interest
rates increase, the value of fixed income securities tends to decline.
DESCRIPTION OF INVESTMENT SECURITIES AND PRACTICES
U. S. Government Securities
Each Fund may invest in U.S. Government Securities. Some U.S.
Government Securities (such as Treasury bills, notes and bonds, which differ
only in their interest rates, maturities and times of issuance) are supported by
the full faith and credit of the United States. Others, such as obligations
issued or guaranteed by U.S. government agencies, instrumentalities or sponsored
enterprises, are supported either by (a) the right of the issuer to borrow from
the U.S. Treasury (such as securities of the Student Loan Marketing
Association), (b) the discretionary authority of the U.S. government to purchase
certain obligations of the issuer (such as securities of Federal National
Mortgage Association ("Fannie Mae") and Federal Home Loan Mortgage Corporation
("Freddie Mac")) or (c) only the credit of the issuer (such as securities of the
Financing Corporation). The U.S. government is under no legal obligation, in
general, to purchase the obligations of its agencies, instrumentalities or
sponsored enterprises. No assurance can be given that the U.S. government will
provide financial support to the U.S. government agencies, instrumentalities or
sponsored enterprises in the future.
U.S. Government Securities include (to the extent consistent with the
Investment Company Act of 1940, as amended (the "Act")) securities for which the
payment of principal and interest is backed by an irrevocable letter of credit
issued by the U.S. government, or its agencies, instrumentalities or sponsored
enterprises. U.S. Government Securities also include (to the extent consistent
with the Act) participations in loans made to foreign governments or their
agencies that are guaranteed as to principal and interest by the U.S. government
or its agencies, instrumentalities or sponsored enterprises. The secondary
market for certain of these participations is extremely limited. In the absence
of a suitable secondary market, such participations are regarded as illiquid.
Each Fund may also purchase U.S. Government Securities in private
placements and may invest in separately traded principal and interest components
of securities guaranteed or issued by the U.S. Treasury that are traded
independently under the separate trading of registered interest and principal of
securities program ("STRIPS").
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Custodial Receipts
Each Fund may invest in custodial receipts in respect of securities
issued or guaranteed as to principal and interest by the U.S. government, its
agencies instrumentalities, political subdivisions or authorities. Such
custodial receipts evidence ownership of future interest payments, principal
payments or both on certain notes or bonds issued or guaranteed as to principal
and interest by the U.S. government, its agencies, instrumentalities, political
subdivisions or authorities. These custodial receipts are known by various
names, including "Treasury Receipts," "Treasury Investors Growth Receipts"
("TIGRs") and "Certificates of Accrual on Treasury Securities" ("CATs"). For
certain securities law purposes, custodial receipts are not considered U.S.
Government Securities.
Mortgage Loans and Mortgage-Backed Securities
Adjustable Rate Government, Short Duration Government, Government
Income, Core Fixed Income, Global Income, and High Yield Funds (collectively,
the "Taxable Funds") may each invest in mortgage loans and mortgage pass-through
securities and other securities representing an interest in or collateralized by
adjustable and fixed-rate mortgage loans ("Mortgage-Backed Securities").
Mortgage-Backed Securities (including CMOs, REMICs and SMBS described
below) are subject to both call risk and extension risk. Because of these risks,
these securities can have significantly greater price and yield volatility than
with traditional fixed-income securities.
General Characteristics. Each mortgage pool underlying Mortgage-Backed
-----------------------
Securities consists of mortgage loans evidenced by promissory notes secured by
first mortgages or first deeds of trust or other similar security instruments
creating a first lien on owner occupied and non-owner occupied one-unit to
four-unit residential properties, multi-family (i.e., five or more) properties,
agriculture properties, commercial properties and mixed use properties (the
"Mortgaged Properties"). The Mortgaged Properties may consist of detached
individual dwelling units, multi-family dwelling units, individual condominiums,
townhouses, duplexes, triplexes, fourplexes, row houses, individual units in
planned unit developments and other attached dwelling units. The Mortgaged
Properties may also include residential investment properties and second homes.
The investment characteristics of adjustable and fixed rate
Mortgage-Backed Securities differ from those of traditional fixed-income
securities. The major differences include the payment of interest and principal
on Mortgage-Backed Securities on a more frequent (usually monthly) schedule, and
the possibility that principal may be prepaid at any time due to prepayments on
the underlying mortgage loans or other assets. These differences can result in
significantly greater price and yield volatility than is the case with
traditional fixed-income securities. As a result, if a Fund purchases
Mortgaged-Backed Securities at a premium, a faster than expected prepayment rate
will reduce both the market value and the yield to maturity from those which
were anticipated. A prepayment rate that is slower than expected will have the
opposite effect of increasing yield to maturity and market value. Conversely, if
a Fund purchases Mortgage-Backed Securities at a discount, faster than expected
prepayments will increase, while slower than expected prepayments will reduce
yield to maturity and market values. To the extent that a Fund invests in
Mortgage-Backed Securities, its Investment Adviser may seek to manage these
potential risks by investing in a variety of Mortgage-Backed Securities and by
using certain hedging techniques.
Adjustable Rate Mortgage Loans ("ARMs"). The Adjustable Rate Government
---------------------------------------
Fund will primarily, and the Short Duration Government, Government Income, Core
Fixed Income, and High Yield Funds may, invest in ARMs. ARMs generally provide
for a fixed initial mortgage interest rate for a specified period of time.
Thereafter, the interest rates (the "Mortgage Interest Rates") may be subject to
periodic adjustment based on changes in the applicable index rate (the "Index
Rate"). The adjusted rate would be equal to the Index Rate plus a fixed
percentage spread over the Index Rate established for each ARM at the time of
its origination. ARMs allow a Fund to participate in increases in interest rates
through periodic increases in the securities coupon rates. During periods of
declining interest rates, coupon rates may readjust downward resulting in lower
yields to a Fund.
B-12
<PAGE>
Adjustable interest rates can cause payment increases that some
mortgagors may find difficult to make. However, certain ARMs may provide that
the Mortgage Interest Rate may not be adjusted to a rate above an applicable
lifetime maximum rate or below an applicable lifetime minimum rate for such ARM.
Certain ARMs may also be subject to limitations on the maximum amount by which
the Mortgage Interest Rate may adjust for any single adjustment period (the
"Maximum Adjustment"). Other ARMs ("Negatively Amortizing ARMs") may provide
instead or as well for limitations on changes in the monthly payment on such
ARMs. Limitations on monthly payments can result in monthly payments which are
greater or less than the amount necessary to amortize a Negatively Amortizing
ARM by its maturity at the Mortgage Interest Rate in effect in any particular
month. In the event that a monthly payment is not sufficient to pay the interest
accruing on a Negatively Amortizing ARM, any such excess interest is added to
the principal balance of the loan, causing negative amortization, and will be
repaid through future monthly payments. It may take borrowers under Negatively
Amortizing ARMs longer periods of time to build up equity and may increase the
likelihood of default by such borrowers. In the event that a monthly payment
exceeds the sum of the interest accrued at the applicable Mortgage Interest Rate
and the principal payment which would have been necessary to amortize the
outstanding principal balance over the remaining term of the loan, the excess
(or "accelerated amortization") further reduces the principal balance of the
ARM. Negatively Amortizing ARMs do not provide for the extension of their
original maturity to accommodate changes in their Mortgage Interest Rate. As a
result, unless there is a periodic recalculation of the payment amount (which
there generally is), the final payment may be substantially larger than the
other payments. These limitations on periodic increases in interest rates and on
changes in monthly payments protect borrowers from unlimited interest rate and
payment increases.
ARMs also have the risk of prepayments. The rate of principal
prepayments with respect to ARMs has fluctuated in recent years. The value of
Mortgage Backed Securities that are structured as pass through mortgage
securities that are collateralized by ARMs are less likely to rise during
periods of declining interest rates to the same extent as fixed-rate securities.
Accordingly, ARMs may be subject to a greater rate of principal repayments in a
declining interest rate environment resulting in lower yields to a Fund. For
example, if prevailing interest rates fall significantly, ARMs could be subject
to higher prepayment rates (than if prevailing interest rates remain constant or
increase) because the availability of low fixed-rate mortgages may encourage
mortgagors to refinance their ARMs to "lock-in" a fixed-rate mortgage. On the
other hand, during periods of rising interest rates, the value of ARMs will lag
behind changes in the market rate. ARMs are also typically subject to maximum
increases and decreases in the interest rate adjustment which can be made on any
one adjustment date, in any one year, or during the life of the security. In the
event of dramatic increases or decreases in prevailing market interest rates,
the value of a Fund's investment in ARMs may fluctuate more substantially since
these limits may prevent the security from fully adjusting its interest rate to
the prevailing market rates. As with fixed-rate mortgages, ARM prepayment rates
vary in both stable and changing interest rate environments.
There are two main categories of indices which provide the basis for
rate adjustments on ARMs: those based on U.S. Treasury securities and those
derived from a calculated measure, such as a cost of funds index or a moving
average of mortgage rates. Commonly utilized indices include the one-year,
three-year and five-year constant maturity Treasury rates, the three-month
Treasury bill rate, the 180-day Treasury bill rate, rates on longer-term
Treasury securities, the 11th District Federal Home Loan Bank Cost of Funds, the
National Median Cost of Funds, the one-month, three-month, six-month or one-year
London Interbank Offered Rate, the prime rate of a specific bank or commercial
paper rates. Some indices, such as the one-year constant maturity Treasury rate,
closely mirror changes in market interest rate levels. Others, such as the 11th
District Federal Home Loan Bank Cost of Funds index, tend to lag behind changes
in market rate levels and tend to be somewhat less volatile. The degree of
volatility in the market value of each Taxable Fund's portfolio and, therefore,
in the net asset value of each Taxable Fund's shares will be a function of the
length of the interest rate reset periods and the degree of volatility in the
applicable indices.
B-13
<PAGE>
Fixed-Rate Mortgage Loans. Generally, fixed-rate mortgage loans
-------------------------
included in a mortgage pool (the "Fixed-Rate Mortgage Loans") will bear simple
interest at fixed annual rates and have original terms to maturity ranging from
5 to 40 years. Fixed-Rate Mortgage Loans generally provide for monthly payments
of principal and interest in substantially equal installments for the term of
the mortgage note in sufficient amounts to fully amortize principal by maturity,
although certain Fixed-Rate Mortgage Loans provide for a large final "balloon"
payment upon maturity.
Legal Considerations of Mortgage Loans. The following is a discussion
--------------------------------------
of certain legal and regulatory aspects of the mortgage loans in which the
Taxable Funds may invest. These regulations may impair the ability of a mortgage
lender to enforce its rights under the mortgage documents. These regulations may
adversely affect the Funds' investments in Mortgage-Backed Securities (including
those issued or guaranteed by the U.S. government, its agencies or
instrumentalities) by delaying the Funds' receipt of payments derived from
principal or interest on mortgage loans affected by such regulations.
1. Foreclosure. A foreclosure of a defaulted mortgage loan may be delayed
-----------
due to compliance with statutory notice or service of process
provisions, difficulties in locating necessary parties or legal
challenges to the mortgagee's right to foreclose. Depending upon market
conditions, the ultimate proceeds of the sale of foreclosed property
may not equal the amounts owed on the Mortgage-Backed Securities.
Furthermore, courts in some cases have imposed general equitable
principles upon foreclosure generally designed to relieve the borrower
from the legal effect of default and have required lenders to undertake
affirmative and expensive actions to determine the causes for the
default and the likelihood of loan reinstatement.
2. Rights of Redemption. In some states, after foreclosure of a mortgage
--------------------
loan, the borrower and foreclosed junior lienors are given a statutory
period in which to redeem the property, which right may diminish the
mortgagee's ability to sell the property.
3. Legislative Limitations. In addition to anti-deficiency and related
-----------------------
legislation, numerous other federal and state statutory provisions,
including the federal bankruptcy laws and state laws affording relief
to debtors, may interfere with or affect the ability of a secured
mortgage lender to enforce its security interest. For example, a
bankruptcy court may grant the debtor a reasonable time to cure a
default on a mortgage loan, including a payment default. The court in
certain instances may also reduce the monthly payments due under such
mortgage loan, change the rate of interest, reduce the principal
balance of the loan to the then-current appraised value of the related
mortgaged property, alter the mortgage loan repayment schedule and
grant priority of certain liens over the lien of the mortgage loan. If
a court relieves a borrower's obligation to repay amounts otherwise due
on a mortgage loan, the mortgage loan servicer will not be required to
advance such amounts, and any loss may be borne by the holders of
securities backed by such loans. In addition, numerous federal and
state consumer protection laws impose penalties for failure to comply
with specific requirements in connection with origination and servicing
of mortgage loans.
4. "Due-on-Sale" Provisions. Fixed-rate mortgage loans may contain a
------------------------
so-called "due-on-sale" clause permitting acceleration of the maturity
of the mortgage loan if the borrower transfers the property. The
Garn-St. Germain Depository Institutions Act of 1982 sets forth nine
specific instances in which no mortgage lender covered by that Act may
exercise a "due-on-sale" clause upon a transfer of property. The
inability to enforce a "due-on-sale" clause or the lack of such a
clause in mortgage loan documents may result in a mortgage loan being
assumed by a purchaser of the property that bears an interest rate
below the current market rate.
B-14
<PAGE>
5. Usury Laws. Some states prohibit charging interest on mortgage loans in
----------
excess of statutory limits. If such limits are exceeded, substantial
penalties may be incurred and, in some cases, enforceability of the
obligation to pay principal and interest may be affected.
Government Guaranteed Mortgage-Backed Securities. There are several
------------------------------------------------
types of guaranteed Mortgage-Backed Securities currently available, including
guaranteed mortgage pass-through certificates and multiple class securities,
which include guaranteed Real Estate Mortgage Investment Conduit Certificates
("REMIC Certificates"), other collateralized mortgage obligations and stripped
Mortgage-Backed Securities. The Taxable Funds are permitted to invest in other
types of Mortgage-Backed Securities that may be available in the future to the
extent consistent with their respective investment policies and objectives.
Guaranteed Mortgage Pass-Through Securities
Ginnie Mae Certificates. Ginnie Mae is a wholly-owned corporate
-----------------------
instrumentality of the United States. Ginnie Mae is authorized to guarantee the
timely payment of the principal of and interest on certificates that are based
on and backed by a pool of mortgage loans insured by the Federal Housing
Administration ("FHA Loans"), or guaranteed by the Veterans Administration ("VA
Loans"), or by pools of other eligible mortgage loans. In order to meet its
obligations under any guarantee, Ginnie Mae is authorized to borrow from the
U.S. Treasury in an unlimited amount.
Fannie Mae Certificates. Fannie Mae is a stockholder-owned corporation
-----------------------
chartered under an act of the U.S. Congress. Each Fannie Mae Certificate is
issued and guaranteed by Fannie Mae and represents an undivided interest in a
pool of mortgage loans (a "Pool") formed by Fannie Mae. Each Pool consists of
residential mortgage loans ("Mortgage Loans") either previously owned by Fannie
Mae or purchased by it in connection with the formation of the Pool. The
Mortgage Loans may be either conventional Mortgage Loans (i.e., not insured or
guaranteed by any U.S. government agency) or Mortgage Loans that are either
insured by the FHA or guaranteed by the VA. However, the Mortgage Loans in
Fannie Mae Pools are primarily conventional Mortgage Loans. The lenders
originating and servicing the Mortgage Loans are subject to certain eligibility
requirements established by Fannie Mae.
Fannie Mae has certain contractual responsibilities. With respect to
each Pool, Fannie Mae is obligated to distribute scheduled monthly installments
of principal and interest after Fannie Mae's servicing and guaranty fee, whether
or not received, to Certificate holders. Fannie Mae also is obligated to
distribute to holders of Certificates an amount equal to the full principal
balance of any foreclosed Mortgage Loan, whether or not such principal balance
is actually recovered. The obligations of Fannie Mae under its guaranty of the
Fannie Mae Certificates are obligations solely of Fannie Mae.
Freddie Mac Certificates. Freddie Mac is a publicly held U.S.
------------------------
government sponsored enterprise. The principal activity of Freddie Mac currently
is the purchase of first lien, conventional, residential mortgage loans and
participation interests in such mortgage loans and their resale in the form of
mortgage securities, primarily Freddie Mac Certificates. A Freddie Mac
Certificate represents a pro rata interest in a group of mortgage loans or
participation in mortgage loans (a "Freddie Mac Certificate group") purchased by
Freddie Mac.
Freddie Mac guarantees to each registered holder of a Freddie Mac
Certificate the timely payment of interest at the rate provided for by such
Freddie Mac Certificate (whether or not received on the underlying loans).
Freddie Mac also guarantees to each registered Certificate holder ultimate
collection of all principal of the related mortgage loans, without any offset or
deduction, but does not, generally, guarantee the timely payment of scheduled
principal. The obligations of Freddie Mac under its guaranty of Freddie Mac
Certificates are obligations solely of Freddie Mac.
B-15
<PAGE>
The mortgage loans underlying the Freddie Mac and Fannie Mae
Certificates consist of adjustable rate or fixed-rate mortgage loans with
original terms to maturity of between five and thirty years. Substantially all
of these mortgage loans are secured by first liens on one-to-four-family
residential properties or multi-family projects. Each mortgage loan must meet
the applicable standards set forth in the law creating Freddie Mac or Fannie
Mae. A Freddie Mac Certificate group may include whole loans, participation
interests in whole loans, undivided interests in whole loans and participations
comprising another Freddie Mac Certificate group.
Conventional Mortgage Loans. The conventional mortgage loans underlying
---------------------------
the Freddie Mac and Fannie Mae Certificates consist of adjustable rate or
fixed-rate mortgage loans with original terms to maturity of between five and
thirty years. Substantially all of these mortgage loans are secured by first
liens on one- to four-family residential properties or multi-family projects.
Each mortgage loan must meet the applicable standards set forth in the law
creating Freddie Mac or Fannie Mae. A Freddie Mac Certificate group may include
whole loans, participation interests in whole loans, undivided interests in
whole loans and participations comprising another Freddie Mac Certificate group.
Mortgage Pass-Through Securities. The Taxable Funds may invest in both
--------------------------------
government guaranteed and privately issued mortgage pass-through securities
("Mortgage Pass-Throughs"), that are fixed or adjustable rate Mortgage-Backed
Securities which provide for monthly payments that are a "pass-through" of the
monthly interest and principal payments (including any prepayments) made by the
individual borrowers on the pooled mortgage loans, net of any fees or other
amounts paid to any guarantor, administrator and/or servicer of the underlying
mortgage loans.
The following discussion describes only a few of the wide variety of
structures of Mortgage Pass-Throughs that are available or may be issued.
Description of Certificates. Mortgage Pass-Throughs may be issued in
---------------------------
one or more classes of senior certificates and one or more classes of
subordinate certificates. Each such class may bear a different pass-through
rate. Generally, each certificate will evidence the specified interest of the
holder thereof in the payments of principal or interest or both in respect of
the mortgage pool comprising part of the trust fund for such certificates.
Any class of certificates may also be divided into subclasses entitled
to varying amounts of principal and interest. If a REMIC election has been made,
certificates of such subclasses may be entitled to payments on the basis of a
stated principal balance and stated interest rate, and payments among different
subclasses may be made on a sequential, concurrent, pro rata or disproportionate
--- ----
basis, or any combination thereof. The stated interest rate on any such subclass
of certificates may be a fixed rate or one which varies in direct or inverse
relationship to an objective interest index.
Generally, each registered holder of a certificate will be entitled to
receive its pro rata share of monthly distributions of all or a portion of
--- ----
principal of the underlying mortgage loans or of interest on the principal
balances thereof, which accrues at the applicable mortgage pass-through rate, or
both. The difference between the mortgage interest rate and the related mortgage
pass-through rate (less the amount, if any, of retained yield) with respect to
each mortgage loan will generally be paid to the servicer as a servicing fee.
Since certain adjustable rate mortgage loans included in a mortgage pool may
provide for deferred interest (i.e., negative amortization), the amount of
interest actually paid by a mortgagor in any month may be less than the amount
of interest accrued on the outstanding principal balance of the related mortgage
loan during the relevant period at the applicable mortgage interest rate. In
such event, the amount of interest that is treated as deferred interest will be
added to the principal balance of the related mortgage loan and will be
distributed pro rata to certificate-holders as principal of such mortgage loan
--- ----
when paid by the mortgagor in subsequent monthly payments or at maturity.
B-16
<PAGE>
Multiple Class Mortgage-Backed Securities and Collateralized Mortgage
---------------------------------------------------------------------
Obligations. Each Taxable Fund may invest in multiple class securities including
- -----------
collateralized mortgage obligations ("CMOs") and REMIC Certificates. These
securities may be issued by U.S. government agencies and instrumentalities such
as Fannie Mae or sponsored enterprises such as Freddie Mac or, in the case of
Core Fixed Income, Global Income, Government Income and High Yield Funds, by
trusts formed by private originators of, or investors in, mortgage loans,
including savings and loan associations, mortgage bankers, commercial banks,
insurance companies, investment banks and special purpose subsidiaries of the
foregoing. In general, CMOs are debt obligations of a legal entity that are
collateralized by, and multiple class Mortgage-Backed Securities represent
direct ownership interests in, a pool of mortgage loans or Mortgage-Backed
Securities the payments on which are used to make payments on the CMOs or
multiple class Mortgage-Backed Securities.
Fannie Mae REMIC Certificates are issued and guaranteed as to timely
distribution of principal and interest by Fannie Mae. In addition, Fannie Mae
will be obligated to distribute the principal balance of each class of REMIC
Certificates in full, whether or not sufficient funds are otherwise available.
Freddie Mac guarantees the timely payment of interest on Freddie Mac
REMIC Certificates and also guarantees the payment of principal as payments are
required to be made on the underlying mortgage participation certificates
("PCs"). PCs represent undivided interests in specified level payment,
residential mortgages or participations therein purchased by Freddie Mac and
placed in a PC pool. With respect to principal payments on PCs, Freddie Mac
generally guarantees ultimate collection of all principal of the related
mortgage loans without offset or deduction. Freddie Mac also guarantees timely
payment of principal of certain PCs.
CMOs and guaranteed REMIC Certificates issued by Fannie Mae and Freddie
Mac are types of multiple class Mortgage-Backed Securities. Investors may
purchase beneficial interests in REMICs, which are known as "regular" interests
or "residual" interests. The Funds do not intend to purchase residual interests
in REMICs. The REMIC Certificates represent beneficial ownership interests in a
REMIC trust, generally consisting of mortgage loans or Fannie Mae, Freddie Mac
or Ginnie Mae guaranteed Mortgage-Backed Securities (the "Mortgage Assets"). The
obligations of Fannie Mae or Freddie Mac under their respective guaranty of the
REMIC Certificates are obligations solely of Fannie Mae or Freddie Mac,
respectively.
CMOs and REMIC Certificates are issued in multiple classes. Each class
of CMOs or REMIC Certificates, often referred to as a "tranche," is issued at a
specific adjustable or fixed interest rate and must be fully retired no later
than its final distribution date. Principal prepayments on the Mortgage Loans or
the Mortgage Assets underlying the CMOs or REMIC Certificates may cause some or
all of the classes of CMOs or REMIC Certificates to be retired substantially
earlier than their final distribution dates. Generally, interest is paid or
accrues on all classes of CMOs or REMIC Certificates on a monthly basis.
The principal of and interest on the Mortgage Assets may be allocated
among the several classes of CMOs or REMIC Certificates in various ways. In
certain structures (known as "sequential pay" CMOs or REMIC Certificates),
payments of principal, including any principal prepayments, on the Mortgage
Assets generally are applied to the classes of CMOs or REMIC Certificates in the
order of their respective final distribution dates. Thus, no payment of
principal will be made on any class of sequential pay CMOs or REMIC Certificates
until all other classes having an earlier final distribution date have been paid
in full.
Additional structures of CMOs and REMIC Certificates include, among
others, "parallel pay" CMOs and REMIC Certificates. Parallel pay CMOs or REMIC
Certificates are those which are structured to apply principal payments and
prepayments of the Mortgage Assets to two or more classes concurrently on a
proportionate or disproportionate basis. These simultaneous payments are taken
into account in calculating the final distribution date of each class.
B-17
<PAGE>
A wide variety of REMIC Certificates may be issued in parallel pay or
sequential pay structures. These securities include accrual certificates (also
known as "Z-Bonds"), which only accrue interest at a specified rate until all
other certificates having an earlier final distribution date have been retired
and are converted thereafter to an interest-paying security, and planned
amortization class ("PAC") certificates, which are parallel pay REMIC
Certificates that generally require that specified amounts of principal be
applied on each payment date to one or more classes or REMIC Certificates (the
"PAC Certificates"), even though all other principal payments and prepayments of
the Mortgage Assets are then required to be applied to one or more other classes
of the Certificates. The scheduled principal payments for the PAC Certificates
generally have the highest priority on each payment date after interest due has
been paid to all classes entitled to receive interest currently. Shortfalls, if
any, are added to the amount payable on the next payment date. The PAC
Certificate payment schedule is taken into account in calculating the final
distribution date of each class of PAC. In order to create PAC tranches, one or
more tranches generally must be created that absorb most of the volatility in
the underlying Mortgage Assets. These tranches tend to have market prices and
yields that are much more volatile than other PAC classes.
Stripped Mortgage-Backed Securities. The Taxable Funds may invest in
-----------------------------------
Stripped Mortgage-Backed Securities ("SMBS"), which are derivative multiclass
mortgage securities, issued or guaranteed by the U.S. government, its agencies
or instrumentalities. Government Income, Core Fixed Income, and Global Income
Funds may also invest in privately-issued SMBS. Although the market for such
securities is increasingly liquid, privately-issued SMBS may not be readily
marketable and will be considered illiquid for purposes of each Fund's
limitation on investments in illiquid securities. The Investment Adviser may
determine that SMBS which are U.S. Government Securities are liquid for purposes
of each Fund's limitation on investments in illiquid securities. The market
value of the class consisting entirely of principal payments generally is
unusually volatile in response to changes in interest rates. The yields on a
class of SMBS that receives all or most of the interest from Mortgage Assets are
generally higher than prevailing market yields on other Mortgage-Backed
Securities because their cash flow patterns are more volatile and there is a
greater risk that the initial investment will not be fully recouped. A Fund's
investment in SMBS may require the Fund to sell certain of its portfolio
securities to generate sufficient cash to satisfy certain income distribution
requirements.
Privately Issued Mortgage-Backed Securities
The Government Income Fund, Core Fixed Income Fund, Global Income Fund,
and High Yield Fund may invest in privately issued Mortgage-Backed Securities.
Privately issued Mortgage-Backed Securities are generally backed by pools of
conventional (i.e., non-government guaranteed or insured) mortgage loans.
Ratings. The ratings assigned by a rating organization to Mortgage
-------
Pass-Throughs address the likelihood of the receipt of all distributions on the
underlying mortgage loans by the related certificate-holders under the
agreements pursuant to which such certificates are issued. A rating
organization's ratings take into consideration the credit quality of the related
mortgage pool, including any credit support providers, structural and legal
aspects associated with such certificates, and the extent to which the payment
stream on such mortgage pool is adequate to make payments required by such
certificates. A rating organization's ratings on such certificates do not,
however, constitute a statement regarding frequency of prepayments on the
related mortgage loans. In addition, the rating assigned by a rating
organization to a certificate does not address the remote possibility that, in
the event of the insolvency of the issuer of certificates where a subordinated
interest was retained, the issuance and sale of the senior certificates may be
recharacterized as a financing and, as a result of such recharacterization,
payments on such certificates may be affected.
Credit Enhancement. Credit support falls generally into two categories:
------------------
(i) liquidity protection and (ii) protection against losses resulting from
default by an obligor on the underlying assets. Liquidity protection refers to
B-18
<PAGE>
the provision of advances, generally by the entity administering the pools of
mortgages, the provision of a reserve fund, or a combination thereof, to ensure,
subject to certain limitations, that scheduled payments on the underlying pool
are made in a timely fashion. Protection against losses resulting from default
ensures ultimate payment of the obligations on at least a portion of the assets
in the pool. Such credit support can be provided by, among other things, payment
guarantees, letters of credit, pool insurance, subordination, or any combination
thereof.
Subordination; Shifting of Interest; Reserve Fund. In order to achieve
-------------------------------------------------
ratings on one or more classes of Mortgage Pass-Throughs, one or more classes of
certificates may be subordinate certificates which provide that the rights of
the subordinate certificate-holders to receive any or a specified portion of
distributions with respect to the underlying mortgage loans may be subordinated
to the rights of the senior certificate-holders. If so structured, the
subordination feature may be enhanced by distributing to the senior
certificate-holders on certain distribution dates, as payment of principal, a
specified percentage (which generally declines over time) of all principal
payments received during the preceding prepayment period ("shifting interest
credit enhancement"). This will have the effect of accelerating the amortization
of the senior certificates while increasing the interest in the trust fund
evidenced by the subordinate certificates. Increasing the interest of the
subordinate certificates relative to that of the senior certificates is intended
to preserve the availability of the subordination provided by the subordinate
certificates. In addition, because the senior certificate-holders in a shifting
interest credit enhancement structure are entitled to receive a percentage of
principal prepayments which is greater than their proportionate interest in the
trust fund, the rate of principal prepayments on the mortgage loans will have an
even greater effect on the rate of principal payments and the amount of interest
payments on, and the yield to maturity of, the senior certificates.
In addition to providing for a preferential right of the senior
certificate-holders to receive current distributions from the mortgage pool, a
reserve fund may be established relating to such certificates (the "Reserve
Fund"). The Reserve Fund may be created with an initial cash deposit by the
originator or servicer and augmented by the retention of distributions otherwise
available to the subordinate certificate-holders or by excess servicing fees
until the Reserve Fund reaches a specified amount.
The subordination feature, and any Reserve Fund, are intended to
enhance the likelihood of timely receipt by senior certificate-holders of the
full amount of scheduled monthly payments of principal and interest due to them
and will protect the senior certificate-holders against certain losses; however,
in certain circumstances the Reserve Fund could be depleted and temporary
shortfalls could result. In the event that the Reserve Fund is depleted before
the subordinated amount is reduced to zero, senior certificate-holders will
nevertheless have a preferential right to receive current distributions from the
mortgage pool to the extent of the then outstanding subordinated amount. Unless
otherwise specified, until the subordinated amount is reduced to zero, on any
distribution date any amount otherwise distributable to the subordinate
certificates or, to the extent specified, in the Reserve Fund will generally be
used to offset the amount of any losses realized with respect to the mortgage
loans ("Realized Losses"). Realized Losses remaining after application of such
amounts will generally be applied to reduce the ownership interest of the
subordinate certificates in the mortgage pool. If the subordinated amount has
been reduced to zero, Realized Losses generally will be allocated pro rata among
all certificate-holders in proportion to their respective outstanding interests
in the mortgage pool.
Alternative Credit Enhancement. As an alternative, or in addition to
------------------------------
the credit enhancement afforded by subordination, credit enhancement for
Mortgage Pass-Throughs may be provided by mortgage insurance, hazard insurance,
by the deposit of cash, certificates of deposit, letters of credit, a limited
guaranty or by such other methods as are acceptable to a rating agency. In
certain circumstances, such as where credit enhancement is provided by
guarantees or a letter of credit, the security is subject to credit risk because
of its exposure to an external credit enhancement provider.
B-19
<PAGE>
Voluntary Advances. Generally, in the event of delinquencies in
------------------
payments on the mortgage loans underlying the Mortgage Pass-Throughs, the
servicer agrees to make advances of cash for the benefit of certificate-holders,
but only to the extent that it determines such voluntary advances will be
recoverable from future payments and collections on the mortgage loans or
otherwise.
Optional Termination. Generally, the servicer may, at its option with
--------------------
respect to any certificates, repurchase all of the underlying mortgage loans
remaining outstanding at such time if the aggregate outstanding principal
balance of such mortgage loans is less than a specified percentage (generally
5-10%) of the aggregate outstanding principal balance of the mortgage loans as
of the cut-off date specified with respect to such series.
Asset-Backed Securities
Asset-backed securities represent participation in, or are secured by
and payable from, assets such as motor vehicle installment sales, installment
loan contracts, leases of various types of real and personal property,
receivables from revolving credit (credit card) agreements and other categories
of receivables. Such assets are securitized through the use of trusts and
special purpose corporations. Payments or distributions of principal and
interest may be guaranteed up to certain amounts and for a certain time period
by a letter of credit or a pool insurance policy issued by a financial
institution unaffiliated with the trust or corporation, or other credit
enhancements may be present.
Short Duration Tax-Free, Government Income, Municipal Income, Core
Fixed Income, Global Income, and High Yield Funds may invest in asset-backed
securities. The Adjustable Rate Government Fund and Short Duration Government
Fund may only invest in asset-backed securities that are issued or guaranteed by
U.S. government agencies, instrumentalities or sponsored enterprises. Such
securities are often subject to more rapid repayment than their stated maturity
date would indicate as a result of the pass-through of prepayments of principal
on the underlying loans. During periods of declining interest rates, prepayment
of loans underlying asset-backed securities can be expected to accelerate.
Accordingly, a Fund's ability to maintain positions in such securities will be
affected by reductions in the principal amount of such securities resulting from
prepayments, and its ability to reinvest the returns of principal at comparable
yields is subject to generally prevailing interest rates at that time. To the
extent that a Fund invests in asset-backed securities, the values of such Fund's
portfolio securities will vary with changes in market interest rates generally
and the differentials in yields among various kinds of asset-backed securities.
Asset-backed securities present certain additional risks that are not
presented by Mortgage-Backed Securities because asset-backed securities
generally do not have the benefit of a security interest in collateral that is
comparable to Mortgage Assets. Credit card receivables are generally unsecured
and the debtors on such receivables are entitled to the protection of a number
of state and federal consumer credit laws, many of which give such debtors the
right to set-off certain amounts owed on the credit cards, thereby reducing the
balance due. Automobile receivables generally are secured, but by automobiles
rather than residential real property. Most issuers of automobile receivables
permit the loan servicers to retain possession of the underlying obligations. If
the servicer were to sell these obligations to another party, there is a risk
that the purchaser would acquire an interest superior to that of the holders of
the asset-backed securities. In addition, because of the large number of
vehicles involved in a typical issuance and technical requirements under state
laws, the trustee for the holders of the automobile receivables may not have a
proper security interest in the underlying automobiles. Therefore, there is the
possibility that, in some cases, recoveries on repossessed collateral may not be
available to support payments on these securities.
Loan Participations
The High Yield Fund may invest in loan participations. Such loans must
be to issuers in whose obligations the High Yield Fund may invest. A loan
participation is an interest in a loan to a U.S. or foreign company or other
borrower which is administered and sold by a financial intermediary. In a
typical corporate loan syndication, a
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number of lenders, usually banks (co-lenders), lend a corporate borrower a
specified sum pursuant to the terms and conditions of a loan agreement. One of
the co-lenders usually agrees to act as the agent bank with respect to the loan.
Participation interests acquired by the High Yield Fund may take the
form of a direct or co-lending relationship with the corporate borrower, an
assignment of an interest in the loan by a co-lender or another participant, or
a participation in the seller's share of the loan. When the High Yield Fund acts
as co-lender in connection with a participation interest or when the High Yield
Fund acquires certain participation interests, the High Yield Fund will have
direct recourse against the borrower if the borrower fails to pay scheduled
principal and interest. In cases where the High Yield Fund lacks direct
recourse, it will look to the agent bank to enforce appropriate credit remedies
against the borrower. In these cases, the High Yield Fund may be subject to
delays, expenses and risks that are greater than those that would have been
involved if the Fund had purchased a direct obligation (such as commercial
paper) of such borrower. For example, in the event of the bankruptcy or
insolvency of the corporate borrower, a loan participation may be subject to
certain defenses by the borrower as a result of improper conduct by the agent
bank. Moreover, under the terms of the loan participation, the High Yield Fund
may be regarded as a creditor of the agent bank (rather than of the underlying
corporate borrower), so that the High Yield Fund may also be subject to the risk
that the agent bank may become insolvent. The secondary market, if any, for
these loan participations is limited and any loan participations purchased by
the High Yield Fund will be regarded as illiquid.
For purposes of certain investment limitations pertaining to
diversification of the High Yield Fund's portfolio investments, the issuer of a
loan participation will be the underlying borrower. However, in cases where the
High Yield Fund does not have recourse directly against the borrower, both the
borrower and each agent bank and co-lender interposed between the High Yield
Fund and the borrower will be deemed issuers of a loan participation.
Zero Coupon, Deferred Interest, Pay-in-Kind and Capital Appreciation Bonds
Each Fund may invest in zero coupon bonds, deferred interest and
capital appreciation bonds and pay-in-kind ("PIK") securities. Zero coupon,
deferred interest and capital appreciation bonds are debt securities issued or
sold at a discount from their face value and which do not entitle the holder to
any periodic payment of interest prior to maturity or a specified date. The
original issue discount varies depending on the time remaining until maturity or
cash payment date, prevailing interest rates, the liquidity of the security and
the perceived credit quality of the issuer. These securities also may take the
form of debt securities that have been stripped of their unmatured interest
coupons, the coupons themselves or receipts or certificates representing
interests in such stripped debt obligations or coupons. The market prices of
zero coupon, deferred interest, capital appreciation bonds and PIK securities
generally are more volatile than the market prices of interest bearing
securities and are likely to respond to a greater degree to changes in interest
rates than interest bearing securities having similar maturities and credit
quality.
PIK securities may be debt obligations or preferred shares that provide
the issuer with the option of paying interest or dividends on such obligations
in cash or in the form of additional securities rather than cash. Similar to
zero coupon bonds and deferred interest bonds, PIK securities are designed to
give an issuer flexibility in managing cash flow. PIK securities that are debt
securities can either be senior or subordinated debt and generally trade flat
(i.e., without accrued interest). The trading price of PIK debt securities
generally reflects the market value of the underlying debt plus an amount
representing accrued interest since the last interest payment.
Zero coupon, deferred interest, capital appreciation and PIK securities
involve the additional risk that, unlike securities that periodically pay
interest to maturity, a Fund will realize no cash until a specified future
payment date unless a portion of such securities is sold and, if the issuer of
such securities defaults, a Fund may obtain no return at all on its investment.
In addition, even though such securities do not provide for the payment of
current interest in
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cash, the Funds are nonetheless required to accrue income on such investments
for each taxable year and generally are required to distribute such accrued
amounts (net of deductible expenses, if any) to avoid being subject to tax.
Because no cash is generally received at the time of the accrual, a Fund may be
required to liquidate other portfolio securities to obtain sufficient cash to
satisfy federal tax distribution requirements applicable to the Fund. A portion
of the discount with respect to stripped tax-exempt securities or their coupons
may be taxable. See "Taxation."
Variable and Floating Rate Securities
The interest rates payable on certain securities in which each Fund may
invest are not fixed and may fluctuate based upon changes in market rates. A
variable rate obligation has an interest rate which is adjusted at predesignated
periods in response to changes in the market rate of interest on which the
interest rate is based. Variable and floating rate obligations are less
effective than fixed rate instruments at locking in a particular yield.
Nevertheless, such obligations may fluctuate in value in response to interest
rate changes if there is a delay between changes in market interest rates and
the interest reset date for the obligation.
Each Fund may invest in "leveraged" inverse floating rate debt
instruments ("inverse floaters"), including "leveraged inverse floaters." The
interest rate on inverse floaters resets in the opposite direction from the
market rate of interest to which the inverse floater is indexed. An inverse
floater may be considered to be leveraged to the extent that its interest rate
varies by a magnitude that exceeds the magnitude of the change in the index rate
of interest. The higher the degree of leverage inherent in inverse floaters is
associated with greater volatility in their market values. Accordingly, the
duration of an inverse floater may exceed its stated final maturity. Certain
inverse floaters may be deemed to be illiquid securities for purposes of each
Fund's limitation on illiquid investments.
Preferred Stock, Warrants and Rights
The High Yield Fund may invest in preferred stock, warrants and rights.
Preferred stocks are securities that represent an ownership interest providing
the holder with claims on the issuer's earnings and assets before common stock
owners but after bond owners. Unlike debt securities, the obligations of an
issuer of preferred stock, including dividend and other payment obligations, may
not typically be accelerated by the holders of such preferred stock on the
occurrence of an event of default (such as a covenant default or filing of a
bankruptcy petition) or other non-compliance by the issuer with the terms of the
preferred stock. Often, however, on the occurrence of any such event of default
or non-compliance by the issuer, preferred stockholders will be entitled to gain
representation on the issuer's board of directors or increase their existing
board representation. In addition, preferred stockholders may be granted voting
rights with respect to certain issues on the occurrence of any event of default.
Warrants and other rights are options to buy a stated number of shares
of common stock at a specified price at any time during the life of the warrant.
The holders of warrants and rights have no voting rights, receive no dividends
and have no rights with respect to the assets of the issuer.
Corporate Debt Obligations
Short Duration Tax-Free, Government Income, Municipal Income, Core
Fixed Income, Global Income, and High Yield Funds may invest in corporate debt
obligations, including obligations of industrial, utility and financial issuers.
Corporate debt obligations include bonds, notes, debentures and other
obligations of corporations to pay interest and repay principal. Corporate debt
obligations are subject to the risk of an issuer's inability to meet principal
and interest payments on the obligations and may also be subject to price
volatility due to such factors as market interest rates, market perception of
the creditworthiness of the issuer and general market liquidity.
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<PAGE>
Fixed income securities rated BBB or Baa are considered medium-grade
obligations with speculative characteristics, and adverse economic conditions or
changing circumstances may weaken their issuers' capacity to pay interest and
repay principal. Medium to lower rated and comparable non-rated securities tend
to offer higher yields than higher rated securities with the same maturities
because the historical financial condition of the issuers of such securities may
not have been as strong as that of other issuers. Since medium to lower rated
securities generally involve greater risks of loss of income and principal than
higher rated securities, investors should consider carefully the relative risks
associated with investment in securities which carry medium to lower ratings and
in comparable unrated securities. In addition to the risk of default, there are
the related costs of recovery on defaulted issues. The Funds' Investment
Advisers will attempt to reduce these risks through portfolio diversification
and by analysis of each issuer and its ability to make timely payments of income
and principal, as well as broad economic trends and corporate developments.
Trust Preferreds. Short Duration Tax-Free, Government Income, Municipal
Income, Core Fixed Income, Global Income, and High Yield Funds may invest in
trust preferred securities. A trust preferred or capital security is a long
dated bond (for example 30 years) with preferred features. The preferred
features are that payment of interest can be deferred for a specified period
without initiating a default event. From a bondholder's viewpoint, the
securities are senior in claim to standard preferred but are junior to other
bondholders. From the issuer's viewpoint, the securities are attractive because
their interest is deductible for tax purposes like other types of debt
instruments.
High Yield Securities
High Yield Municipal and High Yield Funds may invest in bonds rated BB
or below by Standard & Poor's or Ba or below by Moody's (or comparable rated and
unrated securities). These bonds are commonly referred to as "junk bonds" and
are considered speculative. The ability of their issuers to make principal and
interest payments may be questionable. In some cases, such bonds may be highly
speculative, have poor prospects for reaching investment grade standing and be
in default. As a result, investment in such bonds will entail greater risks than
those associated with investment grade bonds (i.e., bonds rated AAA, AA, A or
BBB by Standard and Poor's or Aaa, Aa, A or Baa by Moody's). Analysis of the
creditworthiness of issuers of high yield securities may be more complex than
for issuers of higher quality debt securities, and the ability of a Fund to
achieve its investment objective may, to the extent of its investments in high
yield securities, be more dependent upon such creditworthiness analysis than
would be the case if the Fund were investing in higher quality securities. See
Appendix B for a description of the corporate bond and preferred stock ratings
by Standard & Poor's, Moody's, Fitch IBCA, Inc. ("Fitch IBCA") and Duff &
Phelps.
The amount of high yield, fixed-income securities proliferated in the
1980s and early 1990s as a result of increased merger and acquisition and
leveraged buyout activity. Such securities are also issued by less-established
corporations desiring to expand. Risks associated with acquiring the securities
of such issuers generally are greater than is the case with higher rated
securities because such issuers are often less creditworthy companies or are
highly leveraged and generally less able than more established or less leveraged
entities to make scheduled payments of principal and interest. High yield
securities are also issued by governmental entities that may have difficulty in
making all scheduled interest and principal payments.
The market values of high yield, fixed-income securities tends to
reflect those individual corporate or municipal developments to a greater extent
than do those of higher rated securities, which react primarily to fluctuations
in the general level of interest rates. Issuers of such high yield securities
are often highly leveraged, and may not be able to make use of more traditional
methods of financing. Their ability to service debt obligations may be more
adversely affected than issuers of higher rated securities by economic
downturns, specific corporate or municipal developments or the issuers'
inability to meet specific projected business forecasts. These non-investment
grade securities also tend to be more sensitive to economic conditions than
higher-rated securities. Negative
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<PAGE>
publicity about the junk bond market and investor perceptions regarding
lower-rated securities, whether or not based on fundamental analysis, may
depress the prices for such securities.
Since investors generally perceive that there are greater risks
associated with non-investment grade securities of the type in which the High
Yield Municipal and High Yield Funds invest, the yields and prices of such
securities may tend to fluctuate more than those for higher-rated securities. In
the lower quality segments of the fixed-income securities market, changes in
perceptions of issuers' creditworthiness tend to occur more frequently and in a
more pronounced manner than do changes in higher quality segments of the
fixed-income securities market, resulting in greater yield and price volatility.
Another factor which causes fluctuations in the prices of high yield,
fixed-income securities is the supply and demand for similarly rated securities.
In addition, the prices of fixed-income securities fluctuate in response to the
general level of interest rates. Fluctuations in the prices of portfolio
securities subsequent to their acquisition will not affect cash income from such
securities but will be reflected in the High Yield Municipal Fund's and the High
Yield Fund's net asset value.
The risk of loss from default for the holders of high yield,
fixed-income securities is significantly greater than is the case for holders of
other debt securities because such high yield fixed-income securities are
generally unsecured and are often subordinated to the rights of other creditors
of the issuers of such securities. Investment by the High Yield Municipal and
High Yield Funds in already defaulted securities poses an additional risk of
loss should nonpayment of principal and interest continue in respect of such
securities. Even if such securities are held to maturity, recovery by the High
Yield Municipal and High Yield Funds of their initial investment and any
anticipated income or appreciation is uncertain. In addition, the High Yield
Municipal and High Yield Funds may incur additional expenses to the extent that
they are required to seek recovery relating to the default in the payment of
principal or interest on such securities or otherwise protect their interests.
The High Yield Municipal and High Yield Funds may be required to liquidate other
portfolio securities to satisfy annual distribution obligations of the High
Yield Municipal and High Yield Funds in respect of accrued interest income on
securities which are subsequently written off, even though the High Yield
Municipal and High Yield Funds have not received any cash payments of such
interest.
The secondary market for high yield, fixed-income securities is
concentrated in relatively few markets and is dominated by institutional
investors, including mutual funds, insurance companies and other financial
institutions. Accordingly, the secondary market for such securities is not as
liquid as and is more volatile than the secondary market for higher-rated
securities. In addition, the trading volume for high-yield, fixed-income
securities is generally lower than that of higher rated securities and the
secondary market for high yield, fixed-income securities could contract under
adverse market or economic conditions independent of any specific adverse
changes in the condition of a particular issuer. These factors may have an
adverse effect on the ability of the High Yield Municipal and High Yield Funds
to dispose of particular portfolio investments. Prices realized upon the sale of
such lower rated or unrated securities, under these circumstances, may be less
than the prices used in calculating the net asset value of the High Yield
Municipal and High Yield Funds. A less liquid secondary market also may make it
more difficult for the High Yield Municipal and High Yield Funds to obtain
precise valuations of the high yield securities in their portfolios.
Certain proposed and recently enacted federal laws could adversely
affect the secondary market for high yield securities and the financial
condition of issuers of these securities. The form of proposed legislation and
the probability of such legislation being enacted is uncertain.
Non-investment grade or high-yield, fixed-income securities also
present risks based on payment expectations. High yield, fixed-income securities
frequently contain "call" or buy-back features which permit the
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<PAGE>
issuer to call or repurchase the security from its holder. If an issuer
exercises such a "call option" and redeems the security, the High Yield
Municipal or High Yield Funds may have to replace such security with a
lower-yielding security, resulting in a decreased return for investors. In
addition, if the High Yield Municipal and High Yield Funds experience net
redemptions of their shares, they may be forced to sell their higher-rated
securities, resulting in a decline in the overall credit quality of the
portfolios of the High Yield Municipal and High Yield Funds and increasing the
exposure of the High Yield Municipal and High Yield Funds to the risks of high
yield securities.
Credit ratings issued by credit rating agencies are designed to
evaluate the safety of principal and interest payments of rated securities. They
do not, however, evaluate the market value risk of non-investment grade
securities and, therefore, may not fully reflect the true risks of an
investment. In addition, credit rating agencies may or may not make timely
changes in a rating to reflect changes in the economy or in the conditions of
the issuer that affect the market value of the security. Consequently, credit
ratings are used only as a preliminary indicator of investment quality.
Investments in non-investment grade and comparable unrated obligations will be
more dependent on the Investment Adviser's credit analysis than would be the
case with investments in investment-grade debt obligations. The Investment
Adviser employs its own credit research and analysis, which includes a study of
existing debt, capital structure, ability to service debt and to pay dividends,
the issuer's sensitivity to economic conditions, its operating history and the
current trend of earnings. The Investment Adviser continually monitors the
investments in the portfolios of the High Yield Municipal and High Yield Funds
and evaluates whether to dispose of or to retain non-investment grade and
comparable unrated securities whose credit ratings or credit quality may have
changed.
Because the market for high yield securities is still relatively new
and has not weathered a major economic recession, it is unknown what effects
such a recession might have on such securities. A widespread economic downturn
could result in increased defaults and losses.
Bank Obligations
Government Income, Core Fixed Income, Global Income, and High Yield
Funds may each invest in obligations issued or guaranteed by U.S. and foreign
banks (Government Income Fund may only invest in U.S. dollar denominated
securities). Bank obligations, including without limitation time deposits,
bankers' acceptances and certificates of deposit, may be general obligations of
the parent bank or may be obligations only of the issuing branch pursuant to the
terms of the specific obligations or government regulation.
Banks are subject to extensive governmental regulations which may limit
both the amount and types of loans which may be made and interest rates which
may be charged. Foreign banks are subject to different regulations and are
generally permitted to engage in a wider variety of activities than U.S. banks.
In addition, the profitability of the banking industry is largely dependent upon
the availability and cost of funds for the purpose of financing lending
operations under prevailing money market conditions. General economic conditions
as well as exposure to credit losses arising from possible financial
difficulties of borrowers play an important part in the operations of this
industry.
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<PAGE>
Municipal Securities
Short Duration Tax-Free, Government Income, Municipal Income, Core
Fixed Income, High Yield Municipal and High Yield Funds may invest in Municipal
Securities, the interest on which is exempt from regular federal income tax
(i.e., excluded from gross income for federal income tax purposes but not
necessarily exempt from the federal alternative minimum tax or from the income
taxes of any state or local government). In addition, Municipal Securities
include participation interests in such securities the interest on which is, in
the opinion of bond counsel or counsel selected by the Investment Adviser,
excluded from gross income for federal income tax purposes. Short Duration
Tax-Free, Government Income, Municipal Income, Core Fixed Income, High Yield
Municipal and High Yield Funds may revise their definition of Municipal
Securities in the future to include other types of securities that currently
exist, the interest on which is or will be, in the opinion of such counsel,
excluded from gross income for federal income tax purposes, provided that
investing in such securities is consistent with each Fund's investment objective
and policies. The Short Duration Tax-Free, Municipal Income, Core Fixed Income,
High Yield Municipal and High Yield Funds may also invest in taxable Municipal
Securities.
Municipal Securities are often issued to obtain funds for various
public purposes including refunding outstanding obligations, obtaining funds for
general operating expenses, and obtaining funds to lend to other public
institutions and facilities. Municipal Securities also include certain "private
activity bonds" or industrial development bonds, which are issued by or on
behalf of public authorities to provide financing aid to acquire sites or
construct or equip facilities within a municipality for privately or publicly
owned corporations.
The two principal classifications of Municipal Securities are "general
obligations" and "revenue obligations." General obligations are secured by the
issuer's pledge of its full faith and credit for the payment of principal and
interest, although the characteristics and enforcement of general obligations
may vary according to the law applicable to the particular issuer. Revenue
obligations, which include, but are not limited to, private activity bonds,
resource recovery bonds, certificates of participation and certain municipal
notes, are not backed by the credit and taxing authority of the issuer, and are
payable solely from the revenues derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise or other
specific revenue source. Nevertheless, the obligations of the issuer of a
revenue obligation may be backed by a letter of credit, guarantee or insurance.
General obligations and revenue obligations may be issued in a variety of forms,
including commercial paper, fixed, variable and floating rate securities, tender
option bonds, auction rate bonds and zero coupon bonds, deferred interest bonds
and capital appreciation bonds.
In addition to general obligations and revenue obligations, there is a
variety of hybrid and special types of Municipal Securities. There are also
numerous differences in the security of Municipal Securities both within and
between these two principal classifications.
For the purpose of applying a Fund's investment restrictions, the
identification of the issuer of a Municipal Security which is not a general
obligation is made by the Investment Adviser based on the characteristics of the
Municipal Security, the most important of which is the source of funds for the
payment of principal and interest on such securities.
An entire issue of Municipal Securities may be purchased by one or a
small number of institutional investors such as Short Duration Tax-Free,
Government Income, Municipal Income, Core Fixed Income, High Yield Municipal and
High Yield Funds. Thus, the issue may not be said to be publicly offered. Unlike
some securities that are not publicly offered, a secondary market exists for
many Municipal Securities that were not publicly offered initially and such
securities may be readily marketable.
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<PAGE>
The credit rating assigned to Municipal Securities may reflect the
existence of guarantees, letters of credit or other credit enhancement features
available to the issuers or holders of such Municipal Securities.
The obligations of the issuer to pay the principal of and interest on a
Municipal Security are subject to the provisions of bankruptcy, insolvency and
other laws affecting the rights and remedies of creditors, such as the Federal
Bankruptcy Act, and laws, if any, that may be enacted by Congress or state
legislatures extending the time for payment of principal or interest or imposing
other constraints upon the enforcement of such obligations. There is also the
possibility that, as a result of litigation or other conditions, the power or
ability of the issuer to pay when due principal of or interest on a Municipal
Security may be materially affected.
While the Municipal Income Fund, High Yield Municipal Fund and Short
Duration Tax-Free Fund, under normal market conditions, invest substantially all
of their assets in Municipal Securities, the recognition of certain accrued
market discount income (if the Funds acquire Municipal Securities or other
obligations at a market discount), income from investments other than Municipal
Securities and any capital gains generated from the disposition of investments,
will result in taxable income. In addition to federal income tax, shareholders
may be subject to state, local or foreign taxes on distributions of such income
received from the Funds.
Municipal Leases, Certificates of Participation and Other Participation
-----------------------------------------------------------------------
Interests. Short Duration Tax-Free, Government Income, Municipal Income, Core
- ---------
Fixed Income, High Yield Municipal and High Yield Funds may invest in municipal
leases, certificates of participation and other participation interests. A
municipal lease is an obligation in the form of a lease or installment purchase
which is issued by a state or local government to acquire equipment and
facilities. Income from such obligations is generally exempt from state and
local taxes in the state of issuance. Municipal leases frequently involve
special risks not normally associated with general obligations or revenue bonds.
Leases and installment purchase or conditional sale contracts (which normally
provide for title to the leased asset to pass eventually to the governmental
issuer) have evolved as a means for governmental issuers to acquire property and
equipment without meeting the constitutional and statutory requirements for the
issuance of debt. The debt issuance limitations are deemed to be inapplicable
because of the inclusion in many leases or contracts of "non-appropriation"
clauses that relieve the governmental issuer of any obligation to make future
payments under the lease or contract unless money is appropriated for such
purpose by the appropriate legislative body on a yearly or other periodic basis.
In addition, such leases or contracts may be subject to the temporary abatement
of payments in the event the issuer is prevented from maintaining occupancy of
the leased premises or utilizing the leased equipment. Although the obligations
may be secured by the leased equipment or facilities, the disposition of the
property in the event of non-appropriation or foreclosure might prove difficult,
time consuming and costly, and result in a delay in recovering or the failure to
fully recover a Fund's original investment. To the extent that a Fund invests in
unrated municipal leases or participates in such leases, the credit quality
rating and risk of cancellation of such unrated leases will be monitored on an
ongoing basis.
Certificates of participation represent undivided interests in
municipal leases, installment purchase agreements or other instruments. The
certificates are typically issued by a trust or other entity which has received
an assignment of the payments to be made by the state or political subdivision
under such leases or installment purchase agreements.
Certain municipal lease obligations and certificates of participation
may be deemed to be illiquid for the purpose of the Funds' limitation on
investments in illiquid securities. Other municipal lease obligations and
certificates of participation acquired by a Fund may be determined by the
Investment Adviser, pursuant to guidelines adopted by the Trustees of the Trust,
to be liquid securities for the purpose of such limitation. In determining the
liquidity of municipal lease obligations and certificates of participation, the
Investment Adviser will consider a variety of factors, including: (1) the
willingness of dealers to bid for the security; (2) the number of dealers
willing to purchase or sell the obligation and the number of other potential
buyers; (3) the frequency of trades or quotes for the
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<PAGE>
obligation; and (4) the nature of the marketplace trades. In addition, the
Investment Adviser will consider factors unique to particular lease obligations
and certificates of participation affecting the marketability thereof. These
include the general creditworthiness of the issuer, the importance to the issuer
of the property covered by the lease and the likelihood that the marketability
of the obligation will be maintained throughout the time the obligation is held
by a Fund.
Short Duration Tax-Free, Municipal Income, Core Fixed Income, High
Yield Municipal and High Yield Funds may purchase participations in Municipal
Securities held by a commercial bank or other financial institution. Such
participations provide a Fund with the right to a pro rata undivided interest in
the underlying Municipal Securities. In addition, such participations generally
provide a Fund with the right to demand payment, on not more than seven days'
notice, of all or any part of such Fund's participation interest in the
underlying Municipal Security, plus accrued interest.
Municipal Notes. Municipal Securities in the form of notes generally
---------------
are used to provide for short-term capital needs, in anticipation of an issuer's
receipt of other revenues or financing, and typically have maturities of up to
three years. Such instruments may include tax anticipation notes, revenue
anticipation notes, bond anticipation notes, tax and revenue anticipation notes
and construction loan notes. Tax anticipation notes are issued to finance the
working capital needs of governments. Generally, they are issued in anticipation
of various tax revenues, such as income, sales, property, use and business
taxes, and are payable from these specific future taxes. Revenue anticipation
notes are issued in expectation of receipt of other kinds of revenue, such as
federal revenues available under federal revenue sharing programs. Bond
anticipation notes are issued to provide interim financing until long-term bond
financing can be arranged. In most cases, the long-term bonds then provide the
funds needed for repayment of the notes. Tax and revenue anticipation notes
combine the funding sources of both tax anticipation notes and revenue
anticipation notes. Construction Loan Notes are sold to provide construction
financing. These notes are secured by mortgage notes insured by the FHA;
however, the proceeds from the insurance may be less than the economic
equivalent of the payment of principal and interest on the mortgage note if
there has been a default. The obligations of an issuer of municipal notes are
generally secured by the anticipated revenues from taxes, grants or bond
financing. An investment in such instruments, however, presents a risk that the
anticipated revenues will not be received or that such revenues will be
insufficient to satisfy the issuer's payment obligations under the notes or that
refinancing will be otherwise unavailable.
Tax-Exempt Commercial Paper. Issues of commercial paper typically
---------------------------
represent short-term, unsecured, negotiable promissory notes. These obligations
are issued by state and local governments and their agencies to finance working
capital needs of municipalities or to provide interim construction financing and
are paid from general revenues of municipalities or are refinanced with
long-term debt. In most cases, tax-exempt commercial paper is backed by letters
of credit, lending agreements, note repurchase agreements or other credit
facility agreements offered by banks or other institutions.
Pre-Refunded Municipal Securities. The principal of and interest on
---------------------------------
pre-refunded Municipal Securities are no longer paid from the original revenue
source for the securities. Instead, the source of such payments is typically an
escrow fund consisting of U.S. Government Securities. The assets in the escrow
fund are derived from the proceeds of refunding bonds issued by the same issuer
as the pre-refunded Municipal Securities. Issuers of Municipal Securities use
this advance refunding technique to obtain more favorable terms with respect to
securities that are not yet subject to call or redemption by the issuer. For
example, advance refunding enables an issuer to refinance debt at lower market
interest rates, restructure debt to improve cash flow or eliminate restrictive
covenants in the indenture or other governing instrument for the pre-refunded
Municipal Securities. However, except for a change in the revenue source from
which principal and interest payments are made, the pre-refunded Municipal
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Securities remain outstanding on their original terms until they mature or are
redeemed by the issuer. Pre-refunded Municipal Securities are usually purchased
at a price which represents a premium over their face value.
Private Activity Bonds. Short Duration Tax-Free, Municipal Income, Core
----------------------
Fixed Income, High Yield Municipal and High Yield Funds may each invest in
certain types of Municipal Securities, generally referred to as industrial
development bonds (and referred to under current tax law as private activity
bonds), which are issued by or on behalf of public authorities to obtain funds
to provide privately operated housing facilities, airport, mass transit or port
facilities, sewage disposal, solid waste disposal or hazardous waste treatment
or disposal facilities and certain local facilities for water supply, gas or
electricity. Other types of industrial development bonds, the proceeds of which
are used for the construction, equipment, repair or improvement of privately
operated industrial or commercial facilities, may constitute Municipal
Securities, although the current federal tax laws place substantial limitations
on the size of such issues. A Tax Exempt Fund's distributions of its interest
income from private activity bonds may subject certain investors to the federal
alternative minimum tax whereas Core Fixed Income Fund's distributions of any
tax-exempt interest it receives from any source will be taxable for regular
federal income tax purposes.
Tender Option Bonds. A tender option bond is a Municipal Security
-------------------
(generally held pursuant to a custodial arrangement) having a relatively long
maturity and bearing interest at a fixed rate substantially higher than
prevailing short-term, tax-exempt rates. The bond is typically issued with the
agreement of a third party, such as a bank, broker-dealer or other financial
institution, which grants the security holders the option, at periodic
intervals, to tender their securities to the institution and receive the face
value thereof. As consideration for providing the option, the financial
institution receives periodic fees equal to the difference between the bond's
fixed coupon rate and the rate, as determined by a remarketing or similar agent
at or near the commencement of such period, that would cause the securities,
coupled with the tender option, to trade at par on the date of such
determination. Thus, after payment of this fee, the security holder effectively
holds a demand obligation that bears interest at the prevailing short-term,
tax-exempt rate. However, an institution will not be obligated to accept
tendered bonds in the event of certain defaults or a significant downgrade in
the credit rating assigned to the issuer of the bond. The liquidity of a tender
option bond is a function of the credit quality of both the bond issuer and the
financial institution providing liquidity. Tender option bonds are deemed to be
liquid unless, in the opinion of the Investment Adviser, the credit quality of
the bond issuer and the financial institution is deemed, in light of the Fund's
credit quality requirements, to be inadequate and the bond would not otherwise
be readily marketable. The Tax Exempt Funds intend to invest in tender option
bonds the interest on which will, in the opinion of bond counsel, counsel for
the issuer of interests therein or counsel selected by the Investment Adviser,
be exempt from regular federal income tax. However, because there can be no
assurance that the Internal Revenue Service (the "IRS") will agree with such
counsel's opinion in any particular case, there is a risk that a Tax Exempt Fund
will not be considered the owner of such tender option bonds and thus will not
be entitled to treat such interest as exempt from such tax. Additionally, the
federal income tax treatment of certain other aspects of these investments,
including the proper tax treatment of tender option bonds and the associated
fees in relation to various regulated investment company tax provisions is
unclear. The Tax Exempt Funds intend to manage their portfolio in a manner
designed to eliminate or minimize any adverse impact from the tax rules
applicable to these investments.
Auction Rate Securities. Short Duration Tax-Free, Municipal Income,
-----------------------
Core Fixed Income, High Yield Municipal and High Yield Funds may invest in
auction rate securities. Auction rate securities consist of auction rate
Municipal Securities and auction rate preferred securities issued by closed-end
investment companies that invest primarily in Municipal Securities
(collectively, "auction rate securities"). Provided that the auction mechanism
is successful, auction rate securities usually permit the holder to sell the
securities in an auction at par value at specified intervals. The dividend is
reset by "Dutch" auction in which bids are made by broker-dealers and other
institutions for a certain amount of securities at a specified minimum yield.
The dividend rate set by the auction is the lowest interest or dividend rate
that covers all securities offered for sale. While this process is designed to
permit auction rate securities to be traded at par value, there is some risk
that an auction will fail due to insufficient demand for the
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securities. A Fund will take the time remaining until the next scheduled auction
date into account for purpose of determining the securities' duration.
Dividends on auction rate preferred securities issued by a closed-end
fund may be designated as exempt from federal income tax to the extent they are
attributable to exempt income earned by the fund on the securities in its
portfolio and distributed to holders of the preferred securities, provided that
the preferred securities are treated as equity securities for federal income tax
purposes and the closed-end fund complies with certain tests under the Internal
Revenue Code of 1986, as amended (the "Code").
A Fund's investments in auction rate securities of closed-end funds are
subject to the limitations prescribed by the Act and certain state securities
regulations. The Funds will indirectly bear their proportionate share of any
management and other fees paid by such closed-end funds in addition to the
advisory fees payable directly by the Funds.
Insurance. Short Duration Tax-Free, Government Income, Municipal
---------
Income, Core Fixed Income, High Yield Municipal and High Yield Funds may invest
in "insured" tax-exempt Municipal Securities. Insured Municipal Securities are
securities for which scheduled payments of interest and principal are guaranteed
by a private (non-governmental) insurance company. The insurance only entitles a
Fund to receive the face or par value of the securities held by the Fund. The
insurance does not guarantee the market value of the Municipal Securities or the
value of the shares of a Fund.
Short Duration Tax-Free, Municipal Income, Core Fixed Income, High
Yield Municipal and High Yield Funds may utilize new issue or secondary market
insurance. A new issue insurance policy is purchased by a bond issuer who wishes
to increase the credit rating of a security. By paying a premium and meeting the
insurer's underwriting standards, the bond issuer is able to obtain a high
credit rating (usually, Aaa from Moody's or AAA from Standard & Poor's) for the
issued security. Such insurance is likely to increase the purchase price and
resale value of the security. New issue insurance policies are non-cancelable
and continue in force as long as the bonds are outstanding.
A secondary market insurance policy is purchased by an investor (such
as a Fund) subsequent to a bond's original issuance and generally insures a
particular bond for the remainder of its term. The Funds may purchase bonds
which have already been insured under a secondary market insurance policy by a
prior investor, or the Funds may directly purchase such a policy from insurers
for bonds which are currently uninsured.
An insured Municipal Security acquired by a Fund will typically be
covered by only one of the above types of policies. All of the insurance
policies used by a Fund will be obtained only from insurance companies rated, at
the time of purchase, A by Moody's or Standard & Poor's, or if unrated,
determined by the Investment Adviser to be of comparable quality. The Municipal
Securities invested in by High Yield Municipal Fund and High Yield Fund will not
be subject to this requirement.
Standby Commitments. In order to enhance the liquidity of Municipal
-------------------
Securities, the Tax Exempt Funds may acquire the right to sell a security to
another party at a guaranteed price and date. Such a right to resell may be
referred to as a "standby commitment" or liquidity put, depending on its
characteristics. The aggregate price which a Fund pays for securities with
standby commitments may be higher than the price which otherwise would be paid
for the securities. Standby commitments may not be available or may not be
available on satisfactory terms.
Standby commitments may involve letters of credit issued by domestic or
foreign banks supporting the other party's ability to purchase the security from
a Tax Exempt Fund. The right to sell may be exercisable on demand or at
specified intervals, and may form part of a security or be acquired separately
by a Tax Exempt Fund. In
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considering whether a security meets a Tax Exempt Fund's quality standards, the
particular Tax Exempt Fund will look to the creditworthiness of the party
providing the Fund with the right to sell as well as the quality of the security
itself.
The Tax Exempt Funds value Municipal Securities which are subject to
standby commitments at amortized cost. The exercise price of the standby
commitments is expected to approximate such amortized cost. No value is assigned
to the standby commitments for purposes of determining a Tax Exempt Fund's net
asset value. The cost of a standby commitment is carried as unrealized
depreciation from the time of purchase until it is exercised or expires. Since
the value of a standby commitment is dependent on the ability of the standby
commitment writer to meet its obligation to repurchase, a Tax Exempt Fund's
policy is to enter into standby commitment transactions only with banks, brokers
or dealers which present a minimal risk of default.
The Investment Adviser understands that the IRS has issued a favorable
revenue ruling to the effect that, under specified circumstances, a registered
investment company will be the owner of tax-exempt municipal obligations
acquired subject to a put option. The IRS has subsequently announced that it
will not ordinarily issue advance ruling letters as to the identity of the true
owner of property in cases involving the sale of securities or participation
interests therein if the purchaser has the right to cause the security, or the
participation interest therein, to be purchased by either the seller or a third
party. The Tax Exempt Funds intend to take the position that they are the owner
of any Municipal Securities acquired subject to a standby commitment or acquired
or held with certain other types of put rights and that tax-exempt interest
earned with respect to such Municipal Securities will be tax-exempt in their
hands. There is no assurance that standby commitments will be available to the
Tax Exempt Funds nor have the Tax Exempt Funds assumed that such commitments
would continue to be available under all market conditions.
Call Risk and Reinvestment Risk. Municipal Securities may include
-------------------------------
"call" provisions which permit the issuers of such securities, at any time or
after a specified period, to redeem the securities prior to their stated
maturity. In the event that Municipal Securities held in a Fund's portfolio are
called prior to the maturity, the Fund will be required to reinvest the proceeds
on such securities at an earlier date and may be able to do so only at lower
yields, thereby reducing the Fund's return on its portfolio securities.
Foreign Investments
Core Fixed Income, Global Income and High Yield Funds may invest in
securities of foreign issuers and in fixed-income securities quoted or
denominated in a currency other than U.S. dollars. Investment in foreign
securities may offer potential benefits that are not available from investing
exclusively in U.S. dollar-denominated domestic issues. Foreign countries may
have economic policies or business cycles different from those of the U.S. and
markets for foreign fixed-income securities do not necessarily move in a manner
parallel to U.S. markets. Investing in the securities of foreign issuers also
involves, however, certain special considerations, including those set forth
below, which are not typically associated with investing in U.S. issuers.
Investments in the securities of foreign issuers usually involve currencies of
foreign countries and Core Fixed Income, Global Income and High Yield Funds may
be affected favorably or unfavorably by changes in currency rates and in
exchange control regulations and may incur costs in connection with conversions
between various currencies. To the extent that a Fund is fully invested in
foreign securities while also maintaining currency positions, it may be exposed
to greater combined risk. A Fund also may be subject to currency exposure
independent of its securities positions. While the Global Income Fund will have
both long and short currency positions, its net long and short foreign currency
exposure will not exceed the value of the Fund's total assets.
Currency exchange rates may fluctuate significantly over short periods
of time. They generally are determined by the forces of supply and demand in the
foreign exchange markets and the relative merits of
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investments in different countries, actual or anticipated changes in interest
rates and other complex factors, as seen from an international perspective.
Currency exchange rates also can be affected unpredictably by intervention by
U.S. or foreign governments or central banks or the failure to intervene or by
currency controls or political developments in the United States or abroad. To
the extent that a substantial portion of a Fund's total assets, adjusted to
reflect the Fund's net position after giving effect to currency transactions, is
denominated or quoted in the currencies of foreign countries, the Fund will be
more susceptible to the risk of adverse economic and political developments
within those countries. A Fund's net currency positions may expose it to risks
independent of its securities positions. In addition, if the payment declines in
value against the U.S. dollar before such income is distributed as dividends to
shareholders or converted to U.S. dollars, the Fund may have to sell portfolio
securities to obtain sufficient cash to pay such dividends.
Since foreign issuers generally are not subject to uniform accounting,
auditing and financial reporting standards, practices and requirements
comparable to those applicable to U.S. companies, there may be less publicly
available information about a foreign company than about a comparable U.S.
company. Volume and liquidity in most foreign bond markets are less than in the
United States markets and securities of many foreign companies are less liquid
and more volatile than securities of comparable U.S. companies. Fixed
commissions on foreign securities exchanges are generally higher than negotiated
commissions on U.S. exchanges, although each Fund endeavors to achieve the most
favorable net results on its portfolio transactions. There is generally less
government supervision and regulation of securities markets and exchanges,
brokers, dealers and listed and unlisted companies than in the United States.
For example, there may be no comparable provisions under certain foreign laws to
insider trading and similar investor protection securities laws that apply with
respect to securities transactions consummated in the United States. Mail
service between the United States and foreign countries may be slower or less
reliable than within the United States, thus increasing the risk of delayed
settlement of portfolio transactions or loss of certificates for portfolio
securities.
Foreign markets also have different clearance and settlement
procedures, and in certain markets there have been times when settlements have
been unable to keep pace with the volume of securities transactions, making it
difficult to conduct such transactions. Such delays in settlement could result
in temporary periods when a portion of the assets of Core Fixed Income, Global
Income or High Yield Fund is uninvested and no return is earned on such assets.
The inability of Core Fixed Income, Global Income or High Yield Fund to make
intended security purchases due to settlement problems could cause the Fund to
miss attractive investment opportunities. Inability to dispose of portfolio
securities due to settlement problems could result either in losses to Core
Fixed Income, Global Income or High Yield Income Fund due to subsequent declines
in value of the portfolio securities, or, if Core Fixed Income, Global Income or
High Yield Fund has entered into a contract to sell the securities, could result
in possible liability to the purchaser. In addition, with respect to certain
foreign countries, there is the possibility of expropriation or confiscatory
taxation, political or social instability, or diplomatic developments which
could adversely affect Core Fixed Income, High Yield or Global Income Funds'
investments in those countries. Moreover, individual foreign economies may
differ favorably or unfavorably from the U.S. economy in such respects as growth
of gross national product, rate of inflation, capital reinvestment, resources
self-sufficiency and balance of payments position.
Investing in Emerging Countries
Market Characteristics. Of the Core Fixed Income, Global Income and
----------------------
High Yield Funds investments in foreign securities, 10%, 10% and 25% of their
respective total assets may be invested in emerging countries. Investment in
debt securities of emerging country issuers involve special risks. The
development of a market for such securities is a relatively recent phenomenon
and debt securities of most emerging country issuers are less liquid and are
generally subject to greater price volatility than securities of issuers in the
United States and other developed countries. In certain countries, there may be
few publicly traded securities, and the market may be dominated by a few issuers
or sectors. The markets for securities of emerging countries may have
substantially less volume than the
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market for similar securities in the United States and may not be able to
absorb, without price disruptions, a significant increase in trading volume or
trade size. Additionally, market making and arbitrage activities are generally
less extensive in such markets, which may contribute to increased volatility and
reduced liquidity of such markets. The less liquid the market, the more
difficult it may be for a Fund to price accurately its portfolio securities or
to dispose of such securities at the times determined to be appropriate. The
risks associated with reduced liquidity may be particularly acute to the extent
that a Fund needs cash to meet redemption requests, to pay dividends and other
distributions or to pay its expenses.
A Fund's purchase and sale of portfolio securities in certain emerging
countries may be constrained by limitations as to daily changes in the prices of
listed securities, periodic trading or settlement volume and/or limitations on
aggregate holdings of foreign investors. Such limitations may be computed based
on the aggregate trading volume by or holdings of a Fund, the Investment
Adviser, its affiliates and their respective clients and other service
providers. A Fund may not be able to sell securities in circumstances where
price, trading or settlement volume limitations have been reached.
Securities markets of emerging countries may also have less efficient
clearance and settlement procedures than U.S. markets, making it difficult to
conduct and complete transactions. Delays in the settlement could result in
temporary periods when a portion of a Fund's assets is uninvested and no return
is earned thereon. Inability to make intended security purchases could cause the
Fund to miss attractive investment opportunities. Inability to dispose of
portfolio securities could result either in losses to a Fund due to subsequent
declines in value of the portfolio security or, if a Fund has entered into a
contract to sell the security, could result in possible liability of a Fund to
the purchaser.
Transaction costs, including brokerage commissions and dealer mark-ups,
in emerging countries may be higher than in the U.S. and other developed
securities markets. As legal systems in emerging countries develop, foreign
investors may be adversely affected by new or amended laws and regulations. In
circumstances where adequate laws exist, it may not be possible to obtain swift
and equitable enforcement of the law.
With respect to investments in certain emerging countries, archaic
legal systems may have an adverse impact on a Fund. For example, while the
potential liability of a shareholder in a U.S. corporation with respect to acts
of the corporation is generally limited to the amount of the shareholder's
investment, the notion of limited liability is less clear in certain emerging
countries. Similarly, the rights of investors in emerging country companies may
be more limited than those of shareholders of U.S. corporation.
Economic, Political and Social Factors. Emerging countries may be
--------------------------------------
subject to a greater degree of economic, political and social instability than
the United States, Japan and most Western European countries, and unanticipated
political and social developments may affect the value of a Fund's investments
in emerging countries and the availability to the Fund of additional investments
in such countries. Moreover, political and economic structures in many emerging
countries may be undergoing significant evolution and rapid development.
Instability may result from, among other things: (i) authoritarian governments
or military involvement in political and economic decision-making, including
changes or attempted changes in government through extra-constitutional means;
(ii) popular unrest associated with demands for improved economic, political and
social conditions; (iii) internal insurgencies; (iv) hostile relations with
neighboring countries; (v) ethnic, religious and racial disaffection and
conflict; and (vi) the absence of developed legal structures governing foreign
private property. Many emerging countries have experienced in the past, and
continue to experience, high rates of inflation. In certain countries, inflation
has at times accelerated rapidly to hyperinflationary levels, creating a
negative interest rate environment and sharply eroding the value of outstanding
financial assets in those countries. The economies of many emerging countries
are heavily dependent upon international trade and are accordingly affected by
protective trade barriers and the economic conditions of their trading partners.
In addition, the economies of some emerging countries may differ
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unfavorably from the U.S. economy in such respects as growth of gross domestic
product, rate of inflation, capital reinvestment, resources, self-sufficiency
and balance of payments position.
Restrictions on Investment and Repatriation. Certain emerging countries
-------------------------------------------
require governmental approval prior to investments by foreign persons or limit
investments by foreign persons to only a specified percentage of an issuer's
outstanding securities or a specific class of securities which may have less
advantageous terms (including price) than securities of the issuer available for
purchase by nationals. Repatriation of investment income and capital from
certain emerging countries is subject to certain governmental consents. Even
where there is no outright restriction on repatriation of capital, the mechanics
of repatriation may affect the operation of a Fund.
Sovereign Debt Obligations. Investments in sovereign debt obligations
--------------------------
involve special risks not present in corporate debt obligations. The issuer of
the sovereign debt or the governmental authorities that control the repayment of
the debt may be unable or unwilling to repay principal or interest when due, and
a Fund may have limited recourse in the event of a default. During periods of
economic uncertainty, the market prices of sovereign debt, and a Fund's net
asset value, may be more volatile than prices of debt obligations of U.S.
issuers. In the past, the governments of certain emerging countries have
encountered difficulties in servicing their debt obligations, withheld payments
of principal and interest and declared moratoria on the payment of principal and
interest on their sovereign debts.
A sovereign debtor's willingness or ability to repay principal and pay
interest in a timely manner may be affected by, among other factors, its cash
flow situation, the extent of its foreign currency reserves, the availability of
sufficient foreign exchange, the relative size of the debt service burden, the
sovereign debtor's policy toward principal international lenders and local
political constraints. Sovereign debtors may also be dependent on expected
disbursements from foreign governments, multinational agencies and other
entities to reduce principal and interest arrearages on their debt. The failure
of a sovereign debtor to implement economic reforms, achieve specified levels of
economic performance or repay principal or interest when due may result in the
cancellation of the third parties' commitments to lend funds to the sovereign
debtor, which may further impair such debtor's ability or willingness to timely
service its debts.
Brady Bonds. Certain foreign debt obligations, customarily referred to
-----------
as "Brady Bonds," are created through the exchange of existing commercial bank
loans to foreign entities for new obligations in connection with debt
restructuring under a plan introduced by former U.S. Secretary of the Treasury,
Nicholas F. Brady (the "Brady Plan"). Brady Bonds may be fully or partially
collateralized or uncollateralized and issued in various currencies (although
most are U.S. dollar denominated). In the event of a default on collateralized
Brady Bonds for which obligations are accelerated, the collateral for the
payment of principal will not be distributed to investors, nor will such
obligations be sold and the proceeds distributed. The collateral will be held by
the collateral agent to the scheduled maturity of the defaulted Brady Bonds,
which will continue to be outstanding, at which time the face amount of the
collateral will equal the principal payments which would have then been due on
the Brady Bonds in the normal course. In light of the residual risk of the Brady
Bonds, and among other factors, the history of default with respect to
commercial bank loans by public and private entities of countries issuing Brady
Bonds, investments in Brady Bonds may be speculative.
Forward Foreign Currency Exchange Contracts. Core Fixed Income, Global
-------------------------------------------
Income and High Yield Funds may enter into forward foreign currency exchange
contracts for hedging purposes and to seek to increase total return. A forward
foreign currency exchange contract involves an obligation to purchase or sell a
specific currency at a future date, which may be any fixed number of days from
the date of the contract agreed upon by the parties, at a price set at the time
of the contract. These contracts are traded in the interbank market conducted
directly between currency traders (usually large commercial banks) and their
customers. A forward contract generally has no deposit requirement, and no
commissions are generally charged at any stage for trades.
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At the maturity of a forward contract, Core Fixed Income, Global Income
Fund or High Yield Fund may either accept or make delivery of the currency
specified in the contract or, at or prior to maturity, enter into a closing
purchase transaction involving the purchase or sale of an offsetting contract.
Closing purchase transactions with respect to forward contracts are usually
effected with the currency trader who is a party to the original forward
contract.
Core Fixed Income, Global Income or High Yield Fund may enter into
forward foreign currency exchange contracts in several circumstances. First,
when a Fund enters into a contract for the purchase or sale of a security quoted
or denominated in a foreign currency, or when a Fund anticipates the receipt in
a foreign currency of a dividend or interest payment on such a security which it
holds, a Fund may desire to "lock in" the U.S. dollar price of the security or
the U.S. dollar equivalent of such dividend or interest payment, as the case may
be. By entering into a forward contract for the purchase or sale, for a fixed
amount of U.S. dollars, of the amount of foreign currency involved in the
underlying transactions, a Fund may attempt to protect itself against an adverse
change in the relationship between the U.S. dollar and the subject foreign
currency during the period between the date on which the security is purchased
or sold, or on which the dividend or interest payment is declared, and the date
on which such payments are made or received.
Additionally, when the Investment Adviser believes that the currency of
a particular foreign country may suffer a substantial decline against the U.S.
dollar, it may enter into a forward contract to sell, for a fixed amount of U.S.
dollars, the amount of foreign currency approximating the value of some or all
of a Fund's portfolio securities quoted or denominated in such foreign currency.
The precise matching of the forward contract amounts and the value of the
securities involved will not generally be possible because the future value of
such securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date on which the
contract is entered into and the date it matures. Using forward contracts to
protect the value of a Fund's portfolio securities against a decline in the
value of a currency does not eliminate fluctuations in the underlying prices of
the securities. It simply establishes a rate of exchange which a Fund can
achieve at some future point in time. The precise projection of short-term
currency market movements is not possible, and short-term hedging provides a
means of fixing the U.S. dollar value of only a portion of a Fund's foreign
assets.
Core Fixed Income, Global Income and High Yield Funds may engage in
cross-hedging by using forward contracts in one currency to hedge against
fluctuations in the value of securities denominated or quoted in a different
currency if the Investment Adviser determines that there is a pattern of
correlation between the two currencies.
Unless otherwise covered, cash or liquid assets will be segregated in
an amount equal to the value of the Fund's total assets committed to the
consummation of forward foreign currency exchange contracts requiring the Fund
to purchase foreign currencies and forward contracts entered into to seek to
increase total return. The segregated assets will be marked-to-market. If the
value of the segregated assets declines, additional liquid assets will be
segregated so that the value will equal the amount of the Fund's commitments
with respect to such contracts. Although the contracts are not presently
regulated by the Commodity Futures Trading Commission ("CFTC"), the CFTC may in
the future assert authority to regulate these contracts. If this happens, a
Fund's ability to utilize forward foreign currency exchange contracts may be
restricted. Global Income, Core Fixed Income and High Yield Funds will not enter
into a forward contract with a term of greater than one year.
While Core Fixed Income, Global Income, and High Yield Funds may enter
into forward contracts to seek to reduce currency exchange rate risks,
transactions in such contracts involve certain other risks. Thus, while the
Funds may benefit from such transactions, unanticipated changes in currency
prices may result in a poorer overall performance for a Fund than if it had not
engaged in any such transactions. Moreover, there may be imperfect correlation
between a Fund's portfolio holdings of securities quoted or denominated in a
particular currency and
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forward contracts entered into by a Fund. Such imperfect correlation may cause
the Fund to sustain losses which will prevent the Fund from achieving a complete
hedge or expose the Fund to risk of foreign exchange loss.
Markets for trading forward foreign currency contracts offer less
protection against defaults than is available when trading in currency
instruments on an exchange. Forward contracts are subject to the risk that the
counterparty to such contract will default on its obligations. Since a forward
foreign currency exchange contract is not guaranteed by an exchange or
clearinghouse, a default on the contract would deprive a Fund of unrealized
profits, transaction costs or the benefits of a currency hedge or force the Fund
to cover its purchase or sale commitments, if any, at the current market price.
A Fund will not enter into forward foreign currency exchange contracts, unless
the credit quality of the unsecured senior debt or the claims-paying ability of
the counterparty is considered to be investment grade by the Investment Adviser.
To the extent that a substantial portion of a Fund's total assets, adjusted to
reflect the Fund's net position after giving effect to currency transactions, is
denominated or quoted in the currencies of foreign countries, the Fund will be
more susceptible to the risk of adverse economic and political developments
within those countries.
Interest Rate Swaps, Mortgage Swaps, Credit Swaps, Currency Swaps and Interest
Rate Caps, Floors and Collars
Each Fund may enter into interest rate and credit swaps. Each Fund
(other than the Municipal Income Fund) may enter into interest rate caps, floors
and collars. In addition, Adjustable Rate Government, Short Duration Government,
Government Income, Core Fixed Income, Global Income and High Yield Funds may
enter into mortgage swaps; and Core Fixed Income, High Yield and Global Income
Funds may enter into currency swaps. Each Fund may enter into swap transactions
for hedging purposes or to seek to increase total return. Interest rate swaps
involve the exchange by a Fund with another party of their respective
commitments to pay or receive interest, such as an exchange of fixed-rate
payments for floating rate payments. Mortgage swaps are similar to interest rate
swaps in that they represent commitments to pay and receive interest. The
notional principal amount, however, is tied to a reference pool or pools of
mortgages. Credit swaps involve the receipt of floating or fixed rate payments
in exchange for assuming potential credit losses of an underlying security.
Credit swaps give one party to a transaction the right to dispose of or acquire
an asset (or group of assets), or the right to receive or make a payment from
the other party, upon the occurrence of specified credit events. Currency swaps
involve the exchange of the parties' respective rights to make or receive
payments in specified currencies. The purchase of an interest rate cap entitles
the purchaser, to the extent that a specified index exceeds a predetermined
interest rate, to receive payment of interest on a notional principal amount
from the party selling such interest rate cap. The purchase of an interest rate
floor entitles the purchaser, to the extent that a specified index falls below a
predetermined interest rate, to receive payments of interest on a notional
principal amount from the party selling the interest rate floor. An interest
rate collar is the combination of a cap and a floor that preserves a certain
return within a predetermined range of interest rates. Since interest rate,
mortgage, credit and currency swaps and interest rate caps, floors and collars
are individually negotiated, each Fund expects to achieve an acceptable degree
of correlation between its portfolio investments and its swap, cap, floor and
collar positions.
A Fund will enter into interest rate and mortgage swaps only on a net
basis, which means that the two payment streams are netted out, with the Fund
receiving or paying, as the case may be, only the net amount of the two
payments. Interest rate and mortgage swaps do not involve the delivery of
securities, other underlying assets or principal. Accordingly, the risk of loss
with respect to interest rate and mortgage swaps is limited to the net amount of
payments that a Fund is contractually obligated to make. If the other party to
an interest rate swap defaults, a Fund's risk of loss consists of the net amount
of payments that such Fund is contractually entitled to receive, if any. In
contrast, currency swaps usually involve the delivery of the entire principal
amount of one designated currency in exchange for the other designated currency.
Therefore, the entire principal value of a currency swap is subject to the risk
that the other party to the swap will default on its contractual delivery
obligations. To the extent that a Fund's
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potential exposure in a transaction involving a swap or an interest rate floor,
cap or collar is covered by the segregation of cash or liquid assets, the Funds
and its Investment Adviser believes that transactions do not constitute senior
securities under the Act and, accordingly, will not treat them as being subject
to a Fund's borrowing restrictions.
The Funds will not enter into any interest rate, mortgage or credit
swap transactions unless the unsecured commercial paper, senior debt or
claims-paying ability of the other party is rated either A or A-1 or better by
Standard & Poor's or A or P-1 or better by Moody's or their equivalent ratings.
Core Fixed Income, Global Income and High Yield Funds will not enter into any
currency swap transactions unless the unsecured commercial paper, senior debt or
claims-paying ability of the other party thereto is rated investment grade by
Standard & Poor's or Moody's, or, if unrated by such rating organization,
determined to be of comparable quality by the Investment Adviser. If there is a
default by the other party to such a transaction, a Fund will have contractual
remedies pursuant to the agreements related to the transaction. The swap market
has grown substantially in recent years with a large number of banks and
investment banking firms acting both as principals and as agents utilizing
standardized swap documentation. As a result, the swap market has become
relatively liquid in comparison with the markets for other similar instruments
which are traded in the interbank market. The Investment Adviser, under the
supervision of the Board of Trustees, is responsible for determining and
monitoring the liquidity of the Funds' transactions in swaps, caps, floors and
collars.
The use of interest rate, mortgage, credit and currency swaps, as well
as interest rate caps, floors and collars, is a highly specialized activity
which involves investment techniques and risks different from those associated
with ordinary portfolio securities transactions. If the Investment Adviser is
incorrect in its forecasts of market values, interest rates and currency
exchange rates, the investment performance of a Fund would be less favorable
than it would have been if this investment technique were not used.
Options on Securities and Securities Indices
Writing Covered Options. Each Fund may write (sell) covered call and
-----------------------
put options on any securities in which it may invest or on any securities index
composed of securities in which it may invest. A Fund may purchase and write
such options on securities that are listed on national domestic securities
exchanges or foreign securities exchanges or traded in the over-the-counter
market. A call option written by a Fund obligates such Fund to sell specified
securities to the holder of the option at a specified price if the option is
exercised at any time before the expiration date. All call options written by a
Fund are covered, which means that such Fund will own the securities subject to
the option so long as the option is outstanding or such Fund will use the other
methods described below. The Fund's purpose in writing covered call options is
to realize greater income than would be realized on portfolio securities
transactions alone. However, a Fund may forego the opportunity to profit from an
increase in the market price of the underlying security.
A put option written by a Fund obligates the Fund to purchase specified
securities from the option holder at a specified price if the option is
exercised at any time before the expiration date. All put options written by a
Fund would be covered, which means that such Fund will segregate cash or liquid
assets with a value at least equal to the exercise price of the put option or
will use the other methods described below. The purpose of writing such options
is to generate additional income for the Fund. However, in return for the option
premium, each Fund accepts the risk that it may be required to purchase the
underlying securities at a price in excess of the securities' market value at
the time of purchase.
All call and put options written by a Fund are covered. A written call
option or put option may be covered by (i) segregating cash or liquid assets, as
permitted by applicable law, either of which, in the case of Core Fixed Income,
Global Income Fund or High Yield Fund, may be quoted or denominated in any
currency, with a value at
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least equal to the Fund's obligation under the option, (ii) entering into an
offsetting forward commitment, and/or (iii) purchasing an offsetting option or
any other option which, by virtue of its exercise price or otherwise, reduces
the Fund's net exposure on its written option position.
A Fund may terminate its obligations under an exchange-traded call or
put option by purchasing an option identical to the one it has written.
Obligations under over-the-counter options may be terminated only by entering
into an offsetting transaction with the counterparty to such option. Such
purchases are referred to as "closing purchase transactions."
Each Fund may also write (sell) covered call and put options on any
securities index composed of securities in which it may invest. Options on
securities indices are similar to options on securities, except that the
exercise of securities index options requires cash settlement payments and does
not involve the actual purchase or sale of securities. In addition, securities
index options are designed to reflect price fluctuations in a group of
securities or segment of the securities market rather than price fluctuations in
a single security.
The Funds may cover call options on a securities index by owning
securities whose price changes are expected to be similar to those of the
underlying index or by having an absolute and immediate right to acquire such
securities without additional cash consideration (or for additional cash
consideration that is segregated) upon conversion or exchange of other
securities in its portfolio. The Funds may also cover call and put options on a
securities index by segregating cash or liquid assets, as permitted by
applicable law, with a value equal to the exercise price or by using the other
methods described above.
The writing and purchase of options is a highly specialized activity
which involves investment techniques and risks different from those associated
with ordinary portfolio securities transactions. The use of options to seek to
increase total return involves the risk of loss if the Investment Adviser is
incorrect in its expectation of fluctuations in securities prices or interest
rates. The successful use of options for hedging purposes also depends in part
on the ability of the Investment Adviser to predict future price fluctuations
and the degree of correlation between the options and securities markets. If the
Investment Adviser is incorrect in its expectation of changes in securities
prices or determination of the correlation between the securities indices on
which options are written and purchased and the securities in a Fund's
investment portfolio, the investment performance of the Fund will be less
favorable than it would have been in the absence of such options transactions.
The writing of options could increase a Fund's portfolio turnover rate and,
therefore, associated brokerage commissions or spreads.
Purchasing Options. Each Fund may also purchase put and call options on
------------------
any securities in which it may invest or options on any securities index
composed of securities in which it may invest. A Fund would also be able to
enter into closing sale transactions in order to realize gains or minimize
losses on options it had purchased.
A Fund may purchase call options in anticipation of an increase, or put
options in anticipation of a decrease ("protective puts"), in the market value
of securities of the type in which it may invest. The purchase of a call option
would entitle a Fund, in return for the premium paid, to purchase specified
securities at a specified price during the option period. A Fund would
ordinarily realize a gain on the purchase of a call option if, during the option
period, the value of such securities exceeded the sum of the exercise price, the
premium paid and transaction costs; otherwise the Fund would realize either no
gain or a loss on the purchase of the call option. The purchase of a put option
would entitle a Fund, in exchange for the premium paid, to sell specified
securities at a specified price during the option period. The purchase of
protective puts is designed to offset or hedge against a decline in the market
value of a Fund's securities. Put options may also be purchased by a Fund for
the purpose of affirmatively benefiting from a decline in the price of
securities which it does not own. A Fund would ordinarily realize a gain if,
during the option period, the value of the underlying securities decreased below
the exercise price sufficiently to cover the premium and transaction costs;
otherwise the Fund would realize either no gain or a loss on the purchase of the
put option.
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Gains and losses on the purchase of put options may be offset by countervailing
changes in the value of the underlying portfolio securities.
A Fund may purchase put and call options on securities indices for the
same purposes as it may purchase options on securities. Options on securities
indices are similar to options on securities, except that the exercise of
securities index options requires cash payments and does not involve the actual
purchase or sale of securities. In addition, securities index options are
designed to reflect price fluctuations in a group of securities or segment of
the securities market rather than price fluctuations in a single security.
Writing and Purchasing Currency Call and Put Options. Core Fixed
----------------------------------------------------
Income, Global Income and High Yield Funds may write covered put and call
options and purchase put and call options on foreign currencies in an attempt to
protect against declines in the U.S. dollar value of foreign portfolio
securities and against increases in the U.S. dollar cost of foreign securities
to be acquired. Global Income, Core Fixed Income and High Yield Funds may use
options on currency to cross-hedge, which involves writing or purchasing options
on one currency to seek to hedge against changes in exchange rates for a
different currency with a pattern of correlation. As with other kinds of option
transactions, however, the writing of an option on foreign currency will
constitute only a partial hedge, up to the amount of the premium received. If an
option that a Fund has written is exercised, the Fund could be required to
purchase or sell foreign currencies at disadvantageous exchange rates, thereby
incurring losses. The purchase of an option on foreign currency may constitute
an effective hedge against exchange rate fluctuations; however, in the event of
exchange rate movements adverse to a Fund's position, the Fund may forfeit the
entire amount of the premium plus related transaction costs. In addition, Core
Fixed Income, Global Income and High Yield Funds may purchase call options on
currency to seek to increase total return.
A call option written by Core Fixed Income, Global Income or High Yield
Fund obligates the Fund to sell specified currency to the holder of the option
at a specified price if the option is exercised at any time before the
expiration date. A put option written by a Fund obligates the Fund to purchase
specified currency from the option holder at a specified price if the option is
exercised at any time before the expiration date. The writing of currency
options involves a risk that a Fund will, upon exercise of the option, be
required to sell currency subject to a call at a price that is less than the
currency's market value or be required to purchase currency subject to a put at
a price that exceeds the currency's market value.
A Fund may terminate its obligations under a written call or put option
by purchasing an option identical to the one written. Such purchases are
referred to as "closing purchase transactions." A Fund may enter into closing
sale transactions in order to realize gains or minimize losses on purchased
options.
Core Fixed Income, Global Income and High Yield Funds would normally
purchase call options in anticipation of an increase in the U.S. dollar value of
currency in which securities to be acquired by the Fund are denominated or
quoted. The purchase of a call option would entitle a Fund, in return for the
premium paid, to purchase specified currency at a specified price during the
option period. A Fund would ordinarily realize a gain if, during the option
period, the value of such currency exceeded the sum of the exercise price, the
premium paid and transaction costs; otherwise, the Fund would realize either no
gain or a loss on the purchase of the call option.
Core Fixed Income, Global Income and High Yield Funds would normally
purchase put options in anticipation of a decline in the U.S. dollar value of
currency in which securities in its portfolio are denominated or quoted
("protective puts"). The purchase of a put option would entitle Core Fixed
Income, Global Income and High Yield Funds, in exchange for the premium paid, to
sell specified currency at a specified price during the option period. The
purchase of protective puts is designed merely to offset or hedge against a
decline in the U.S. dollar value of a Fund's portfolio securities due to
currency exchange rate fluctuations. A Fund would ordinarily realize a gain if,
during the option period, the value of the underlying currency decreased below
the exercise price sufficiently to more than cover the premium and transaction
costs; otherwise, the Fund would realize either no gain or a loss on
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<PAGE>
the purchase of the put option. Gains and losses on the purchase of protective
put options would tend to be offset by countervailing changes in the value of
the underlying currency.
In addition to using options for the hedging purposes described above,
Core Fixed Income, Global Income and High Yield Funds may use options on
currency to seek to increase total return. Core Fixed Income, Global Income and
High Yield Funds may write (sell) covered put and call options on any currency
in an attempt to realize greater income than would be realized on portfolio
securities transactions alone. However, in writing covered call options for
additional income, Core Fixed Income, Global Income and High Yield Funds may
forego the opportunity to profit from an increase in the market value of the
underlying currency. Also, when writing put options, Core Fixed Income, Global
Income and High Yield Funds accept, in return for the option premium, the risk
that it may be required to purchase the underlying currency at a price in excess
of the currency's market value at the time of purchase.
Core Fixed Income, Global Income and High Yield Funds would normally
purchase call options to seek to increase total return in anticipation of an
increase in the market value of a currency. Core Fixed Income, Global Income and
High Yield Funds would ordinarily realize a gain if, during the option period,
the value of such currency exceeded the sum of the exercise price, the premium
paid and transaction costs. Otherwise Core Fixed Income, Global Income and High
Yield Funds would realize either no gain or a loss on the purchase of the call
option. Put options may be purchased by the Core Fixed Income, Global Income and
High Yield Funds for the purpose of benefiting from a decline in the value of
currencies which it does not own. Core Fixed Income, Global Income and High
Yield Funds would ordinarily realize a gain if, during the option period, the
value of the underlying currency decreased below the exercise price sufficiently
to more than cover the premium and transaction costs. Otherwise, Core Fixed
Income, Global Income and High Yield Funds would realize either no gain or a
loss on the purchase of the put option.
Yield Curve Options. Each Fund may enter into options on the yield
-------------------
"spread" or differential between two securities. Such transactions are referred
to as "yield curve" options. In contrast to other types of options, a yield
curve option is based on the difference between the yields of designated
securities, rather than the prices of the individual securities, and is settled
through cash payments. Accordingly, a yield curve option is profitable to the
holder if this differential widens (in the case of a call) or narrows (in the
case of a put), regardless of whether the yields of the underlying securities
increase or decrease.
A Fund may purchase or write yield curve options for the same purposes
as other options on securities. For example, a Fund may purchase a call option
on the yield spread between two securities if the Fund owns one of the
securities and anticipates purchasing the other security and wants to hedge
against an adverse change in the yield spread between the two securities. A Fund
may also purchase or write yield curve options in an effort to increase current
income if, in the judgment of the Investment Adviser, the Fund will be able to
profit from movements in the spread between the yields of the underlying
securities. The trading of yield curve options is subject to all of the risks
associated with the trading of other types of options. In addition, however,
such options present a risk of loss even if the yield of one of the underlying
securities remains constant, or if the spread moves in a direction or to an
extent which was not anticipated.
Yield curve options written by a Fund will be "covered." A call (or
put) option is covered if the Fund holds another call (or put) option on the
spread between the same two securities and segregates cash or liquid assets
sufficient to cover the Fund's net liability under the two options. Therefore, a
Fund's liability for such a covered option is generally limited to the
difference between the amount of the Fund's liability under the option written
by the Fund less the value of the option held by the Fund. Yield curve options
may also be covered in such other manner as may be in accordance with the
requirements of the counterparty with which the option is traded and
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<PAGE>
applicable laws and regulations. Yield curve options are traded
over-the-counter, and the trading markets for these options may not be as
developed as the market for other types of options.
Risks Associated with Options Transactions. There is no assurance that
------------------------------------------
a liquid secondary market on a domestic or foreign options exchange will exist
for any particular exchange-traded option or at any particular time. If a Fund
is unable to effect a closing purchase transaction with respect to covered
options it has written, the Fund will not be able to sell the underlying
securities or dispose of assets held in a segregated account until the options
expire or are exercised. Similarly, if a Fund is unable to effect a closing sale
transaction with respect to options it has purchased, it will have to exercise
the options in order to realize any profit and will incur transaction costs upon
the purchase or sale of underlying securities.
Reasons for the absence of a liquid secondary market on an exchange
include, but are not limited to, the following: (i) there may be insufficient
trading interest in certain options; (ii) restrictions may be imposed by an
exchange on opening or closing transactions or both; (iii) trading halts,
suspensions or other restrictions may be imposed with respect to particular
classes or series of options; (iv) unusual or unforeseen circumstances may
interrupt normal operations on an exchange; (v) the facilities of an exchange or
the Options Clearing Corporation may not at all times be adequate to handle
current trading volume; or (vi) one or more exchanges could, for economic or
other reasons, decide or be compelled at some future date to discontinue the
trading of options (or a particular class or series of options), in which event
the secondary market on that exchange (or in that class or series of options)
would cease to exist although outstanding options on that exchange that had been
issued by the Options Clearing Corporation as a result of trades on that
exchange would continue to be exercisable in accordance with their terms.
A Fund may purchase and sell both options that are traded on U.S. and
foreign exchanges and options traded over-the-counter with broker-dealers who
make markets in these options. The ability to terminate over-the-counter options
is more limited than with exchange-traded options and may involve the risk that
broker-dealers participating in such transactions will not fulfill their
obligations.
Transactions by a Fund in options will be subject to limitations
established by each of the exchanges, boards of trade or other trading
facilities on which such options are traded governing the maximum number of
options in each class which may be written or purchased by a single investor or
group of investors acting in concert regardless of whether the options are
written or purchased on the same or different exchanges, boards of trade or
other trading facilities or are held or written in one or more accounts or
through one of more brokers. Thus, the number of options which a Fund may write
or purchase may be affected by options written or purchased by other investment
advisory clients or the Funds' Investment Adviser. An exchange, board of trade
or other trading facility may order the liquidation of positions found to be in
excess of these limits, and it may impose certain other sanctions.
Futures Contracts and Options on Futures Contracts
Each Fund (with the exception of the Municipal Income Fund) may
purchase and sell various kinds of futures contracts, and purchase and write
call and put options on any of such futures contracts. Each Fund may also enter
into closing purchase and sale transactions with respect to any of such
contracts and options. The futures contracts may be based on various securities
(such as U.S. Government Securities), securities indices, foreign currencies in
the case of Global Income, Core Fixed Income and High Yield Funds and any other
financial instruments and indices. Each Fund will engage in futures and related
options transactions, only for bona fide hedging purposes as defined below or
for purposes of seeking to increase total return to the extent permitted by
regulations of the CFTC. Futures contracts entered into by a Fund are traded on
U.S. exchanges or boards of trade that are licensed and regulated by the CFTC or
on foreign exchanges. Neither the CFTC, National Futures Association nor any
domestic exchange regulates activities of any foreign exchange or boards of
trade, including the
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<PAGE>
execution, delivery and clearing of transactions, or has the power to compel
enforcement of the rules of a foreign exchange or board of trade or any
applicable foreign law. This is true even if the exchange is formally linked to
a domestic market so that a position taken on the market may be liquidated by a
transaction on another market. Moreover, such laws or regulations will vary
depending on the foreign country in which the foreign futures or foreign options
transaction occurs. For these reasons, persons who trade foreign futures or
foreign options contracts may not be afforded certain of the protective measures
provided by the Commodity Exchange Act, the CFTC's regulations and the rules of
the National Futures Association and any domestic exchange, including the right
to use reparations proceedings before the CFTC and arbitration proceedings
provided by the National Futures Association or any domestic futures exchange.
In particular, a Fund's investments in foreign futures or foreign options
transactions may not be provided the same protections in respect of transactions
on United States futures exchanges.
Futures Contracts. A futures contract may generally be described as an
-----------------
agreement between two parties to buy and sell particular financial instruments
or currencies for an agreed price during a designated month (or to deliver the
final cash settlement price, in the case of a contract relating to an index or
otherwise not calling for physical delivery at the end of trading in the
contract).
When interest rates are rising or securities prices are falling, a Fund
can seek to offset a decline in the value of its current portfolio securities
through the sale of futures contracts. When interest rates are falling or
securities prices are rising, a Fund, through the purchase of futures contracts,
can attempt to secure better rates or prices than might later be available in
the market when it effects anticipated purchases. Core Fixed Income, Global
Income and High Yield Funds may each seek to offset anticipated changes in the
value of a currency in which its portfolio securities, or securities that it
intends to purchase, are quoted or denominated by purchasing and selling futures
contracts on such currencies.
Positions taken in the futures markets are not normally held to
maturity but are instead liquidated through offsetting transactions which may
result in a profit or a loss. While futures contracts on securities or currency
will usually be liquidated in this manner, a Fund may instead make, or take,
delivery of the underlying securities or currency whenever it appears
economically advantageous to do so. A clearing corporation associated with the
exchange on which futures on securities or currency are traded guarantees that,
if still open, the sale or purchase will be performed on the settlement date.
Hedging Strategies. Hedging, by use of futures contracts, seeks to
------------------
establish with more certainty than would otherwise be possible the effective
price or rate of return on portfolio securities or securities that a Fund
proposes to acquire or the exchange rate of currencies in which portfolio
securities are quoted or denominated. A Fund may, for example, take a "short"
position in the futures market by selling futures contracts to seek to hedge
against an anticipated rise in interest rates or a decline in market prices or
foreign currency rates that would adversely affect the U.S. dollar value of the
Fund's portfolio securities. Such futures contracts may include contracts for
the future delivery of securities held by a Fund or securities with
characteristics similar to those of a Fund's portfolio securities. Similarly,
Core Fixed Income, Global Income and High Yield Funds may each sell futures
contracts on any currencies in which its portfolio securities are quoted or
denominated or in one currency to seek to hedge against fluctuations in the
value of securities quoted or denominated in a different currency if there is an
established historical pattern of correlation between the two currencies. If, in
the opinion of the Investment Adviser, there is a sufficient degree of
correlation between price trends for a Fund's portfolio securities and futures
contracts based on other financial instruments, securities indices or other
indices, the Funds may also enter into such futures contracts as part of its
hedging strategy. Although under some circumstances prices of securities in a
Fund's portfolio may be more or less volatile than prices of such futures
contracts, the Investment Adviser will attempt to estimate the extent of this
volatility difference based on historical patterns and compensate for any such
differential by having a Fund enter into a greater or lesser number of futures
contracts or by attempting to achieve only a partial hedge against price changes
affecting a Fund's portfolio securities. When hedging of this character is
successful, any depreciation
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<PAGE>
in the value of portfolio securities will be substantially offset by
appreciation in the value of the futures position. On the other hand, any
unanticipated appreciation in the value of a Fund's portfolio securities would
be substantially offset by a decline in the value of the futures position.
On other occasions, a Fund may take a "long" position by purchasing
futures contracts. This may be done, for example, when a Fund anticipates the
subsequent purchase of particular securities when it has the necessary cash, but
expects the prices or currency exchange rates then available in the applicable
market to be less favorable than prices that are currently available.
Options on Futures Contracts. The acquisition of put and call options
----------------------------
on futures contracts will give a Fund the right (but not the obligation) for a
specified price to sell or to purchase, respectively, the underlying futures
contract at any time during the option period. As the purchaser of an option on
a futures contract, a Fund obtains the benefit of the futures position if prices
move in a favorable direction but limits its risk of loss in the event of an
unfavorable price movement to the loss of the premium and transaction costs.
The writing of a call option on a futures contract generates a premium
which may partially offset a decline in the value of a Fund's assets. By writing
a call option, a Fund becomes obligated, in exchange for the premium, to sell a
futures contract if the option is exercised, which may have a value higher than
the exercise price. Conversely, the writing of a put option on a futures
contract generates a premium which may partially offset an increase in the price
of securities that a Fund intends to purchase. However, a Fund becomes obligated
(upon exercise of the option) to purchase a futures contract if the option is
exercised, which may have a value lower than the exercise price. Thus, the loss
incurred by a Fund in writing options on futures is potentially unlimited and
may exceed the amount of the premium received. The Funds will incur transaction
costs in connection with the writing of options on futures.
The holder or writer of an option on a futures contract may terminate
its position by selling or purchasing an offsetting option on the same financial
instrument. There is no guarantee that such closing transactions can be
effected. A Fund's ability to establish and close out positions on such options
will be subject to the development and maintenance of a liquid market.
Other Considerations. A Fund will engage in futures and related options
--------------------
transactions only for bona fide hedging or to seek to increase total return as
permitted by CFTC regulations which permit principals of an investment company
registered under the Act to engage in such transactions without registering as
commodity pool operators.
In addition to bona fide hedging, a CFTC regulation permits a Fund to
engage in other futures transactions if the aggregate initial margin and
premiums required to establish such positions in futures contracts and options
on futures do not exceed 5% of the net asset value of a Fund's portfolio, after
taking into account unrealized profits and losses on any such positions and
excluding the amount by which such options were in-the-money at the time of
purchase. The Funds will engage in transactions in futures contracts and related
options only to the extent such transactions are consistent with the
requirements of the Code for maintaining their qualifications as regulated
investment companies for federal income tax purposes.
Transactions in futures contracts and options on futures involve
brokerage costs, require margin deposits and, in the case of contracts and
options obligating a Fund to purchase securities or currencies, require the Fund
to segregate cash or liquid assets, as permitted by applicable law, in an amount
equal to the underlying value of such contracts and options.
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<PAGE>
While transactions in futures contracts and options on futures may
reduce certain risks, such transactions themselves entail certain other risks.
Thus, while a Fund may benefit from the use of futures and options on futures,
unanticipated changes in interest rates or securities prices or currency
exchange rates may result in a poorer overall performance for a Fund than if it
had not entered into any futures contracts or options transactions. In the event
of an imperfect correlation between a futures position and a portfolio position
which is intended to be protected, the desired protection may not be obtained
and a Fund may be exposed to risk of loss.
Perfect correlation between a Fund's futures positions and portfolio
positions will be impossible to achieve. There are no futures contracts based
upon individual securities, except certain U.S. Government Securities. The only
futures contracts available to hedge a Fund's portfolio are various futures on
U.S. Government Securities, securities indices and foreign currencies. In
addition, it is not possible to hedge fully or protect against currency
fluctuations affecting the value of securities denominated in foreign currencies
because the value of such securities is likely to fluctuate as a result of
independent factors not related to currency fluctuations.
The profitability of a Fund's trading in futures depends upon the
ability of the Investment Adviser to analyze correctly the futures markets.
Mortgage Dollar Rolls
The Taxable Funds (other than High Yield Fund) may enter into mortgage
"dollar rolls" in which a Fund sells securities for delivery in the current
month and simultaneously contracts with the same counterparty to repurchase
similar (same type, coupon and maturity), but not identical securities on a
specified future date. During the roll period, a Fund loses the right to receive
principal and interest paid on the securities sold. However, a Fund would
benefit to the extent of any difference between the price received for the
securities sold and the lower forward price for the future purchase (often
referred to as the "drop") or fee income plus the interest earned on the cash
proceeds of the securities sold until the settlement date of the forward
purchase. Unless such benefits exceed the income, capital appreciation and gain
or loss due to mortgage prepayments that would have been realized on the
securities sold as part of the mortgage dollar roll, the use of this technique
will diminish the investment performance of a Fund compared with what such
performance would have been without the use of mortgage dollar rolls. All cash
proceeds will be invested in instruments that are permissible investments for
the applicable Fund. Each Fund will hold and maintain in a segregated account
until the settlement date cash or liquid assets, as permitted by applicable law,
in an amount equal to its forward purchase price.
For financial reporting and tax purposes, the Funds treat mortgage
dollar rolls as two separate transactions; one involving the purchase of a
security and a separate transaction involving a sale. The Funds do not currently
intend to enter into mortgage dollar rolls that are accounted for as a
financing.
Mortgage dollar rolls involve certain risks including the following: if
the broker-dealer to whom a Fund sells the security becomes insolvent, a Fund's
right to purchase or repurchase the mortgage-related securities subject to the
mortgage dollar roll may be restricted and the instrument which a Fund is
required to repurchase may be worth less than an instrument which a Fund
originally held. Successful use of mortgage dollar rolls will depend upon the
Investment Adviser's ability to manage a Fund's interest rate and mortgage
prepayments exposure. For these reasons, there is no assurance that mortgage
dollar rolls can be successfully employed.
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<PAGE>
Convertible Securities
The Short Duration Tax-Free, Municipal Income, Core Fixed Income and
High Yield Funds may invest in convertible securities. Convertible securities
include corporate notes or preferred stock but are ordinarily long-term debt
obligations of the issuer convertible at a stated exchange rate into common
stock of the issuer. As with all debt securities, the market value of
convertible securities tends to decline as interest rates increase and,
conversely, to increase as interest rates decline. Convertible securities
generally offer lower interest or dividend yields than non-convertible
securities of similar quality. However, when the market price of the common
stock underlying a convertible security exceeds the conversion price, the price
of the convertible security tends to reflect the value of the underlying common
stock. As the market price of the underlying common stock declines, the
convertible security tends to trade increasingly on a yield basis, and thus may
not depreciate to the same extent as the underlying common stock. Convertible
securities rank senior to common stocks in an issuer's capital structure and
consequently entail less risk than the issuer's common stock.
Unlike debt securities, the obligations of an issuer of preferred
stock, including dividend and other payment obligations, may not typically be
accelerated by the holders of preferred stock on the occurrence of an event of
default (such as a covenant default or filing of a bankruptcy petition) or other
non-compliance by the issuer with the terms of the preferred stock. Often,
however, on the occurrence of any such event of default or non-compliance by the
issuer, preferred stockholders will be entitled to gain representation on the
issuer's board of directors or increase their existing board representation. In
addition, preferred stockholders may be granted voting rights with respect to
certain issues on the occurrence of any event of default.
Lending of Portfolio Securities
Each Fund may lend portfolio securities. Under present regulatory
policies, such loans may be made to institutions, such as brokers or dealers and
would be required to be secured continuously by collateral in cash, cash
equivalents, letters of credit or U.S. Government Securities maintained on a
current basis at an amount at least equal to the market value of the Securities
loaned. A Fund would be required to have the right to call a loan and obtain the
securities loaned at any time on five days' notice. For the duration of a loan,
a Fund would continue to receive the equivalent of the interest or dividends
paid by the issuer on the securities loaned and would also receive compensation
from investment of the collateral. A Fund would not have the right to vote any
securities having voting rights during the existence of the loan, but a Fund
would call the loan in anticipation of an important vote to be taken among
holders of the securities or the giving or withholding of their consent on a
material matter affecting the investment. As with other extensions of credit
there are risks of delay in recovering, or even loss of rights in, the
collateral should the borrower of the securities fail financially. However, the
loans would be made only to firms deemed by the applicable Investment Adviser to
be of good standing, and when, in the judgment of the applicable Investment
Adviser, the consideration which can be earned currently from securities loans
of this type justifies the attendant risk. If an Investment Adviser determines
to make securities loans, it is intended that the value of the securities loaned
would not exceed one-third of the value of the total assets of each Fund
(including the loan collateral).
Cash received as collateral for securities lending transactions may be invested
in other investment eligible securities. Investing the collateral subjects it to
market depreciation or appreciation, and the Fund is responsible for any loss
that may result from its investment of the borrowed collateral.
Restricted and Illiquid Securities
Each Fund may purchase securities that are not registered or that are
offered in an exempt non-public offering ("Restricted Securities") under the
Securities Act of 1933, as amended ("1933 Act"), including securities eligible
for resale to "qualified institutional buyers" pursuant to Rule 144A under the
1933 Act. However, a Fund will not invest more than 15% of its net assets in
illiquid investments, which include repurchase agreements with a notice or
demand period of more than seven days, certain SMBS, municipal leases, certain
over-the-counter options, securities that are not readily marketable and
Restricted Securities, unless the Board of Trustees determines, based
B-45
<PAGE>
upon a continuing review of the trading markets for the specific Restricted
Securities, that such Restricted Securities are liquid. Certain commercial paper
issued in reliance on Section 4(2) of the 1933 Act is treated like Rule 144A
Securities. The Trustees have adopted guidelines and delegated to the Investment
Advisers the daily function of determining and monitoring the liquidity of the
Funds' portfolio securities. This investment practice could have the effect of
increasing the level of illiquidity in a Fund to the extent that qualified
institutional buyers become for a time uninterested in purchasing these
Restricted Securities.
The purchase price and subsequent valuation of Restricted Securities
may reflect a discount from the price at which such securities trade when they
are not restricted, since the restriction make them less liquid. The amount of
the discount from the prevailing market price is expected to vary depending upon
the type of security, the character of the issuer, the party who will bear the
expenses of registering the Restricted Securities and prevailing supply and
demand conditions.
When-Issued and Forward Commitment Securities
Each Fund may purchase securities on a when-issued basis or purchase or
sell securities on a forward commitment basis. These transactions involve a
commitment by a Fund to purchase or sell securities at a future date. The price
of the underlying securities (usually expressed in terms of yield) and the date
when the securities will be delivered and paid for (the settlement date) are
fixed at the time the transaction is negotiated. When-issued purchases and
forward commitment transactions are negotiated directly with the other party,
and such commitments are not traded on exchanges. The Funds will generally
purchase securities on a when-issued basis or purchase or sell securities on a
forward commitment basis only with the intention of completing the transaction
and actually purchasing or selling the securities. If deemed advisable as a
matter of investment strategy, however, the Funds may dispose of or negotiate a
commitment after entering into it. A Fund may also sell securities it has
committed to purchase before those securities are delivered to the Fund on the
settlement date. The Funds may realize a capital gain or loss in connection with
these transactions. For purposes of determining each Fund's duration, the
maturity of when-issued or forward commitment securities will be calculated from
the commitment date. Each Fund is generally required to segregate, until three
days prior to settlement date, cash and liquid assets in an amount sufficient to
meet the purchase price unless the Fund's obligations are otherwise covered.
Alternatively, each Fund may enter into offsetting contracts for the forward
sale of other securities that it owns. Securities purchased or sold on a when-
issued or forward commitment basis involve a risk of loss if the value of the
security to be purchased declines prior to the settlement date or if the value
of the security to be sold increases prior to the settlement date.
Other Investment Companies
Each Fund reserves the right to invest up to 10% of its total assets,
calculated at the time of purchase, in the securities of other investment
companies, but may not invest more than 5% of its total assets in the securities
of any one investment company or acquire more than 3% of the voting securities
of any other investment company. Pursuant to an exemptive order obtained from
the SEC, the Funds may invest in money market funds for which the Investment
Adviser or any of its affiliates serves as Investment Adviser. A Fund will
indirectly bear its proportionate share of any management fees and other
expenses paid by investment companies in which it invests in addition to the
advisory and administration fees paid by the Fund. However, to the extent that a
Fund invests in a money market fund for which the Investment Adviser or any of
its affiliates acts as Investment Adviser, the management fees payable by the
Fund to the Investment Adviser will be reduced by an amount equal to the Fund's
proportionate share of the management fees paid by such money market fund to the
Investment Adviser or its affiliates.
Core Fixed Income, Global Income and High Yield Funds may also purchase
shares of investment companies investing primarily in foreign securities,
including "country funds." Country Funds have portfolios
B-46
<PAGE>
consisting primarily of securities of issuers located in one foreign country or
region. Core Fixed Income, Global Income and High Yield Funds may invest in
World Equity Benchmark Shares ("WEB") and similar securities that invest in
securities included in foreign securities indices.
Repurchase Agreements
Each Fund may enter into repurchase agreements with selected
broker-dealers, banks or other financial institutions. In the case of Core Fixed
Income, Global Income and High Yield Funds, these repurchase agreements may
involve foreign government securities. A repurchase agreement is an arrangement
under which a Fund purchases securities and the seller agrees to repurchase the
securities within a particular time and at a specified price. Custody of the
securities is maintained by each Fund's custodian. The repurchase price may be
higher than the purchase price, the difference being income to a Fund, or the
purchase and repurchase prices may be the same, with interest at a stated rate
due to a Fund together with the repurchase price on repurchase. In either case,
the income to a Fund is unrelated to the interest rate on the security subject
to the repurchase agreement.
For purposes of the Act and, generally for tax purposes, a repurchase
agreement is deemed to be a loan from a Fund to the seller of the security. For
other purposes, it is not always clear whether a court would consider the
security purchased by a Fund subject to a repurchase agreement as being owned by
a Fund or as being collateral for a loan by a Fund to the seller. In the event
of commencement of bankruptcy or insolvency proceedings with respect to the
seller of the security before repurchase of the security under a repurchase
agreement, a Fund may encounter delay and incur costs before being able to sell
the security. Such a delay may involve loss of interest or a decline in value of
the security. If the court characterizes the transaction as a loan and a Fund
has not perfected a security interest in the security, the Fund may be required
to return the security to the seller's estate and be treated as an unsecured
creditor of the seller. As an unsecured creditor, a Fund would be at risk of
losing some or all of the principal and interest involved in the
transaction.
The applicable Investment Adviser seeks to minimize the risk of loss
from repurchase agreements by analyzing the creditworthiness of the obligor, in
this case the seller of the security. Apart from the risk of bankruptcy or
insolvency proceedings, there is also the risk that the seller may fail to
repurchase the security. However, if the market value of the security subject to
the repurchase agreement becomes less than the repurchase price (including
accrued interest), each Fund will direct the seller of the security to deliver
additional securities so that the market value of all securities subject to the
repurchase agreement equals or exceeds the repurchase price. Certain repurchase
agreements which provide for settlement in more than seven days can be
liquidated before the nominal fixed term on seven days or less notice. Such
repurchase agreements will be regarded as liquid instruments.
In addition, the Funds, together with other registered investment
companies having management agreements with the Investment Advisers or their
affiliates, may transfer uninvested cash balances into a single joint account,
the daily aggregate balance of which will be invested in one or more repurchase
agreements.
Reverse Repurchase Agreements
Each Fund may borrow money by entering into transactions called reverse
repurchase agreements. Under these arrangements, a Fund will sell portfolio
securities to dealers in U.S. Government Securities or members of the Federal
Reserve System, with an agreement to repurchase the security on an agreed date,
price and interest payment. In the case of Core Fixed Income, Global Income and
High Yield Funds, these reverse repurchase agreements may involve foreign
government securities. Reverse repurchase agreements involve the possible risk
that the value of portfolio securities a Fund relinquishes may decline below the
price a Fund must pay when the transaction closes. Borrowings may magnify the
potential for gain or loss on amounts invested resulting in an increase in the
speculative character of a Fund's outstanding shares.
B-47
<PAGE>
When a Fund enters into a reverse repurchase agreement, it places in a
separate custodial account either liquid assets or other high grade debt
securities that have a value equal to or greater than the repurchase price. The
account is then continuously monitored by the Investment Adviser to make sure
that an appropriate value is maintained. Reverse repurchase agreements are
considered to be borrowings under the Act.
Non-Diversified Status
Since Global Income Fund and High Yield Municipal Fund are each
"non-diversified" under the Act, they are subject only to certain federal tax
diversification requirements. Under federal tax laws, Global Income Fund and
High Yield Municipal Fund may, with respect to 50% of its total assets, invest
up to 25% of its total assets in the securities of any issuer (except that this
limitation does not apply to U.S. Government Securities). With respect to the
remaining 50% of the Fund's total assets, (1) the Fund may not invest more than
5% of its total assets in the securities of any one issuer (other than the U.S.
Government), and (2) the Fund may not acquire more than 10% of the outstanding
voting securities of any one issuer. These tests apply at the end of each
quarter of its taxable year and are subject to certain conditions and
limitations under the Code.
Portfolio Turnover
Each Fund may engage in active short-term trading to benefit from yield
disparities among different issues of securities or among the markets for
fixed-income securities, or for other reasons. It is anticipated that the
portfolio turnover rate of each Fund will vary from year to year.
INVESTMENT RESTRICTIONS
The following investment restrictions have been adopted by the Trust as
fundamental policies that cannot be changed without the affirmative vote of the
holders of a majority of the outstanding voting securities (as defined in the
Act) of the affected Fund. The investment objective of each Fund and all other
investment policies or practices of the Funds, except for Short Duration
Tax-Free Fund's, Municipal Income Fund's and High Yield Municipal Fund's policy
to invest under normal market conditions 80% of their respective net assets in
Municipal Securities (including, with respect to the Municipal Income and High
Yield Municipal Funds, Municipal Securities subject to the federal alternative
minimum tax), are considered by the Trust not to be fundamental and accordingly
may be changed without shareholder approval. As defined in the Act, "a majority
of the outstanding voting securities" of a Fund means the vote (a) of 67% or
more of the shares of the Trust or a Fund present at a meeting, if the holders
of more than 50% of the outstanding shares of the Trust or a Fund are present or
represented by proxy or, (b) more than 50% of the shares of the Trust or a Fund.
For the purposes of the limitations (except for the asset coverage
requirement with respect to borrowings), any limitation which involves a maximum
percentage shall not be considered violated unless an excess over the percentage
occurs immediately after, and is caused by, an acquisition or encumbrance of
securities or assets of, or borrowings by, a Fund. With respect to the Tax
Exempt Funds, the identification of the issuer of a Municipal Security that is
not a general obligation is made by the Investment Adviser based on the
characteristics of the Municipal Security, the most important of which is the
source of funds for the payment of principal and interest on such securities.
B-48
<PAGE>
As a matter of fundamental policy, a Fund may not:
(1) Make any investment inconsistent with the Fund's
classification as a diversified company under the Act. This
restriction does not, however, apply to any Fund classified as
a non-diversified company under the Act;
(2) Invest more than 25% of its total assets in the securities of
one or more issuers conducting their principal business
activities in the same industry (excluding the U.S. government
or its agencies or instrumentalities). (For the purposes of
this restriction, state and municipal governments and their
agencies, authorities and instrumentalities are not deemed to
be industries; telephone companies are considered to be a
separate industry from water, gas or electric utilities;
personal credit finance companies and business credit finance
companies are deemed to be separate industries; and
wholly-owned finance companies are considered to be in the
industry of their parents if their activities are primarily
related to financing the activities of their parents.) This
restriction does not apply to investments in municipal
securities which have been pre-refunded by the use of
obligations of the U.S. government or any of its agencies or
instrumentalities. Each of the Municipal Income, Short
Duration Tax-Free and High Yield Municipal Funds may invest
25% or more of the value of its total assets in Municipal
Securities which are related in such a way that an economic,
business or political development or change affecting one
municipal security would also affect the other Municipal
Securities. These Municipal Securities include (a) Municipal
Securities, the interest on which is paid solely from revenues
of similar projects such as hospitals, electric utility
systems, multi-family housing, nursing homes, commercial
facilities (including hotels), steel companies or life care
facilities; (b) Municipal Securities whose issuers are in the
same state; and (c) industrial development obligations;
(3) Borrow money, except (a) the Fund may borrow from banks (as
defined in the Act) or through reverse repurchase agreements
in amounts up to 33 1/3% of its total assets (including the
amount borrowed); (b) the Fund may, to the extent permitted by
applicable law, borrow up to an additional 5% of its total
assets for temporary purposes; (c) the Fund may obtain such
short-term credits as may be necessary for the clearance of
purchases and sales of portfolio securities; (d) the Fund may
purchase securities on margin to the extent permitted by
applicable law; and (e) the Fund may engage in transactions in
mortgage dollar rolls which are accounted for as financings;
(4) Make loans, except through (a) the purchase of debt
obligations in accordance with the Fund's investment objective
and policies; (b) repurchase agreements with banks, brokers,
dealers and other financial institutions; and (c) loans of
securities as permitted by applicable law;
(5) Underwrite securities issued by others, except to the extent
that the sale of portfolio securities by the Fund may be
deemed to be an underwriting;
(6)(a) For each Fund other than Core Fixed Income Fund, purchase,
hold or deal in real estate, although a Fund may purchase and
sell securities that are secured by real estate or interests
therein, securities of real estate investment trusts and
mortgage-related securities and may hold and sell real estate
acquired by a Fund as a result of the ownership of securities;
(6)(b) In the case of Core Fixed Income Fund, purchase, hold or deal
in real estate (including real estate limited partnerships) or
oil, gas or mineral leases, although the Fund may purchase and
sell securities that are secured by real estate or interests
therein, may purchase mortgage-related
B-49
<PAGE>
securities and may hold and sell real estate acquired by the
Fund as a result of the ownership of securities;
(7) Invest in commodities or commodity contracts, except that the
Fund may invest in currency and financial instruments and
contracts that are commodities or commodity contracts; and
(8) Issue senior securities to the extent such issuance would
violate applicable law.
Notwithstanding any other fundamental investment restriction or policy,
each Fund may invest some or all of its assets in a single open-end investment
company or series thereof with substantially the same fundamental investment
objective, restrictions and policies as the Fund.
In addition to the fundamental policies mentioned above, the Trustees
have adopted the following non-fundamental policies which can be changed or
amended by action of the Trustees without approval of shareholders.
A Fund may not:
(1) Invest in companies for the purpose of exercising control or
management;
(2) Invest more than 15% of the Fund's net assets in illiquid
investments, including repurchase agreements with a notice or
demand period of more than seven days, securities which are
not readily marketable and restricted securities not eligible
for resale pursuant to Rule 144A under the 1933 Act;
(3) Purchase additional securities if the Fund's borrowings
(excluding covered mortgage dollar rolls) exceed 5% of its net
assets; or
(4) Make short sales of securities, except short sales
against-the-box.
B-50
<PAGE>
MANAGEMENT
The Trustees of the Trust are responsible for deciding matters of
general policy and reviewing the actions of the Investment Advisers, distributor
and transfer agent. The officers of the Trust conduct and supervise each Fund's
daily business operations.
Information pertaining to the Trustees and officers of the Trust is set
forth below. Trustees and officers deemed to be "interested persons" of the
Trust for purposes of the Act are indicated by an asterisk.
<TABLE>
<CAPTION>
Name, Age Positions Principal Occupation(s)
and Address With Trust During Past 5 Years
- ----------- ---------- ---------------------
<S> <C> <C>
Ashok N. Bakhru, 57 Chairman Chairman of the Board and Trustee - Goldman
P.O. Box 143 & Trustee Sachs Variable Insurance Trust (registered
Lima, PA 19037 investment company) (since October 1997);
President, ABN Associates (July 1994 -March
1996 and November 1998 to present);
Executive Vice President - Finance and
Administration and Chief Financial Officer,
Coty Inc. (manufacturer of fragrances and
cosmetics) (April 1996-November 1998);
Senior Vice President of Scott Paper Company
(until June 1994); Director of Arkwright
Mutual Insurance Company (1994-Present);
Trustee of International House of
Philadelphia (1989-Present); Member of
Cornell University Council (1992-Present);
Trustee of the Walnut Street Theater
(1992-Present); and Director, Private Equity
Investors - III (since November 1998);
Trustee, Citizens Scholarship Foundation of
America (since 1998).
</TABLE>
B-51
<PAGE>
<TABLE>
<CAPTION>
Name, Age Positions Principal Occupation(s)
and Address With Trust During Past 5 Years
- ----------- ---------- ---------------------
<S> <C> <C>
*David B. Ford, 53 Trustee Trustee-Goldman Sachs Variable Insurance
32 Old Slip Trust (registered investment company) (since
New York, NY 10005 October 1997); Director, Commodities Corp.
LLC (futures and commodities traders) (since
April 1997); Managing Director, J. Aron &
Company (commodity dealer and risk
management adviser) (since November 1996);
Managing Director, Goldman Sachs & Co.
Investment Banking Division (since November
1996); Chief Executive Officer and Director,
CIN Management (investment adviser) (since
August 1996); Chief Executive Officer &
Managing Director and Director, Goldman
Sachs Asset Management International (since
November 1995 and December 1994,
respectively); Co-Head, Goldman Sachs Asset
Management (since November 1995);
Co-Head and Director, Goldman Sachs Funds
Management, L.P. (since November 1995 and
December 1994, respectively); and Chairman
and Director, Goldman Sachs Asset Management
Japan Limited (since November 1994).
*Douglas C. Grip, 37 Trustee Trustee and President--Goldman Sachs
32 Old Slip & President Variable Insurance Trust (registered
New York, NY 10005 investment company) (since October 1997);
Trustee, Trust for Credit Unions (registered
investment company) (since March 1998);
Managing Director, Goldman Sachs Asset
Management Group (since November 1997);
President, Goldman Sachs Funds Group (since
April 1996); and President, MFS Retirement
Services Inc., of Massachusetts Financial
Services (prior thereto).
</TABLE>
B-52
<PAGE>
<TABLE>
<CAPTION>
Name, Age Positions Principal Occupation(s)
and Address With Trust During Past 5 Years
- ----------- ---------- ---------------------
<S> <C> <C>
*John P. McNulty, 47 Trustee Trustee-Goldman Sachs Variable Insurance
32 Old Slip Trust (registered investment company) (since
New York, NY 10005 October 1997); Managing Director, Goldman
Sachs (since November 1996); General
Partner, J. Aron & Company (since November
1995); Director and Co-Head, Goldman Sachs
Funds Management L.P. (since November 1995);
Director, Goldman Sachs Asset Management
International (since January 1996); Co-Head,
GSAM (November 1995 to present); Director,
Global Capital Reinsurance (insurance)
(since 1989); Director, Commodities Corp.
LLC (since April 1997); Limited Partner of
Goldman Sachs (1994 - November 1995); and
Trustee, Trust for Credit Unions (registered
investment company) (January 1996 - March 1998).
Mary P. McPherson, 64 Trustee Trustee-Goldman Sachs Variable Insurance
The Andrew W. Mellon Foundation Trust (registered investment company) (since
140 East 62nd Street October 1997); Vice President and Senior
New York, NY 10021 Program Officer, The Andrew W. Mellon
Foundation (provider of grants for
conservation, environmental and educational
purposes) (since October 1997); President of
Bryn Mawr College (1978-1997); Director,
Smith College (since 1998); Director, Josiah
Macy, Jr. Foundation (health educational
programs) (since 1977); Director, the
Philadelphia Contributionship (insurance)
(since 1985); Director, Amherst College
(1986-1998); Director, Dayton Hudson
Corporation (general retailing
merchandising) (1988-1997); Director, The
Spenser Foundation (educational research)
(since 1993); and member of PNC Advisory
Board (banking) (since 1993).
</TABLE>
B-53
<PAGE>
<TABLE>
<CAPTION>
Name, Age Positions Principal Occupation(s)
and Address With Trust During Past 5 Years
- ----------- ---------- ---------------------
<S> <C> <C>
*Alan A. Shuch, 50 Trustee Trustee-Goldman Sachs Variable Insurance
32 Old Slip Trust (registered investment company) (since
New York, NY 10005 October 1997); Limited Partner, Goldman
Sachs (since December 1994); Consultant to
GSAM (since December 1994); Director, Chief
Operating Officer and Vice President of
Goldman Sachs Funds Management L.P. (from
November 1993 - November 1994); Chairman and
Director, Goldman Sachs Asset Management -
Japan Limited (November 1993 - November
1994); Director, Goldman Sachs Asset
Management International (November 1993 -
November 1994); and General Partner, Goldman
Sachs & Co. Investment Banking Division
(December 1986 - November 1994).
Jackson W. Smart, Jr., 69 Trustee Trustee-Goldman Sachs Variable Insurance
One Northfield Plaza, Suite 218 Trust (registered investment company) (since
Northfield, IL 60093 October 1997); Chairman, Executive Committee
and Director, First Commonwealth, Inc. (a
managed dental care company) (since January
1996); Chairman and Chief Executive Officer,
MSP Communications Inc. (a company engaged
in radio broadcasting) (October 1988 -
December 1997); Director, Federal Express
Corporation (NYSE) (since 1976); and
Director, Evanston Hospital Corporation
(since 1980).
William H. Springer, 70 Trustee Trustee-Goldman Sachs Variable Insurance
701 Morningside Drive Trust (registered investment company) (since
Lake Forest, IL 60045 October 1997); Director, The Walgreen Co. (a
retail drug store business) (since April
1988); Director of Baker, Fentress & Co. (a
closed-end, non-diversified management
investment company) (April 1992 - present);
and Chairman and Trustee, Northern
Institutional Funds (since April 1984).
</TABLE>
B-54
<PAGE>
<TABLE>
<CAPTION>
Name, Age Positions Principal Occupation(s)
and Address With Trust During Past 5 Years
- ----------- ---------- ---------------------
<S> <C> <C>
Richard P. Strubel, 60 Trustee Trustee-Goldman Sachs Variable Insurance
500 Lake Cook Road Trust (registered investment company) (since
Suite 150 October 1997); President and COO, UNext.com
Deerfield, IL 60015 (since 1999) (provider of educational
services via the internet); Director, Gildan
Activewear Inc. (since February 1999);
Director of Kaynar Technologies Inc. (since
March 1997); Managing Director, Tandem
Partners, Inc. (since 1990); President and
Chief Executive Officer, Microdot, Inc. (a
diversified manufacturer of fastening
systems and connectors) (January 1984 -
October 1994); and Trustee, Northern
Institutional Funds (since December 1982).
*Nancy L. Mucker, 50 Vice President Vice President-Goldman Sachs Variable
4900 Sears Tower Insurance Trust (registered investment
Chicago, IL 60606 company) (since 1997); Vice President,
Goldman Sachs (since April 1985).
*John M. Perlowski, 35 Treasurer Treasurer-Goldman Sachs Variable Insurance
32 Old Slip Trust (registered investment company) (since
New York, NY 10005 1997); Vice President, Goldman Sachs (since
July 1995); and Banking Director, Investors
Bank and Trust (November 1993 - July 1995).
*James A. Fitzpatrick, 39 Vice President Vice President-Goldman Sachs Variable
4900 Sears Tower Insurance Trust (registered investment
Chicago, IL 60606 company) (since October 1997); Vice
President, Goldman Sachs (since 1998) and
Managing Director (since October 1999); Vice
President of GSAM (since April 1997); and
Vice President and General Manager, First
Data Corporation - Investor Services Group
(1994 to 1997).
</TABLE>
B-55
<PAGE>
<TABLE>
<CAPTION>
Name, Age Positions Principal Occupation(s)
and Address With Trust During Past 5 Years
- ----------- ---------- ---------------------
<S> <C> <C>
*Jesse Cole, 36 Vice President Vice President-Goldman Sachs Variable
4900 Sears Tower Insurance Trust (registered investment
Chicago, IL 60606 company) (since 1998); Vice President, GSAM
(since June 1998); Vice President, AIM
Management Group, Inc. (investment adviser)
(April 1996-June 1998); and Assistant Vice
President, The Northern Trust Company (June
1987-April 1996).
*Philip V. Giuca , Jr., 37 Assistant Treasurer Assistant Treasurer-Goldman Sachs Variable
32 Old Slip Insurance Trust (registered investment
New York, NY 10005 company) (since 1997); and Vice President,
Goldman Sachs (May 1992-Present).
*Michael J. Richman, 39 Secretary Secretary-Goldman Sachs Variable Insurance
85 Broad Street Trust (registered investment company) (since
New York, NY 10004 1997); General Counsel of the Funds Group of
GSAM (since December 1997); Associate
General Counsel of GSAM (February 1994 -
December 1997); Counsel to the Funds Group,
GSAM (June 1992 - December 1997); Associate
General Counsel, Goldman Sachs (since
December 1998); Vice President of Goldman
Sachs (since June 1992); and Assistant
General Counsel of Goldman Sachs (June 1992
to December 1998).
*Howard B. Surloff, 34 Assistant Secretary Assistant Secretary-Goldman Sachs Variable
85 Broad Street Insurance Trust (registered investment
New York, NY 10004 company) (since 1997); Assistant General
Counsel, GSAM and Associate General Counsel
to the Funds Group (since December 1997);
Assistant General Counsel and Vice
President, Goldman Sachs (since November
1993 and May 1994, respectively); Counsel to
the Funds Group, GSAM (November 1993 -
December 1997); and Associate of Shereff,
Friedman, Hoffman & Goodman (October 1990 to
November 1993).
</TABLE>
B-56
<PAGE>
<TABLE>
<CAPTION>
Name, Age Positions Principal Occupation(s)
and Address With Trust During Past 5 Years
- ----------- ---------- ---------------------
<S> <C> <C>
*Valerie A. Zondorak, 34 Assistant Secretary Assistant Secretary-Goldman Sachs Variable
85 Broad Street Insurance Trust (registered investment
New York, NY 10004 company) (since 1997); Assistant General
Counsel, GSAM and Assistant General Counsel
to the Funds Group (since December 1997);
Vice President and Counsel, Goldman Sachs
(since March 1997); Counsel to the Funds
Group, GSAM (March 1997 - December 1997);
and Associate of Shereff, Friedman, Hoffman
& Goodman (September 1990 to February 1997).
*Deborah A. Farrell, 28 Assistant Secretary Assistant Secretary-Goldman Sachs Variable
85 Broad Street Insurance Trust (registered investment
New York, NY 10004 company) (since 1997); Legal Products
Analyst, Goldman Sachs (since December
1998); Legal Assistant, Goldman Sachs
(January 1996 - December 1998); Assistant
Secretary to the Funds Group (1996 to
present); Executive Secretary, Goldman Sachs
(January 1994 - January 1996); and Legal
Secretary, Cleary, Gottlieb, Steen and
Hamilton (September 1990 - January 1994).
*Kaysie P. Uniacke, 38 Assistant Secretary Assistant Secretary-Goldman Sachs Variable
32 Old Slip Insurance Trust (registered investment
New York, NY 10005 company) (since 1997); Managing Director,
GSAM (since 1997); Vice President and Senior
Portfolio Manager, GSAM (1988 to 1997).
</TABLE>
B-57
<PAGE>
<TABLE>
<CAPTION>
Name, Age Positions Principal Occupation(s)
and Address With Trust During Past 5 Years
- ----------- ---------- ---------------------
<S> <C> <C>
*Elizabeth D. Anderson, 30 Assistant Secretary Assistant Secretary -Goldman Sachs Variable
32 Old Slip Insurance Trust (registered investment
New York, NY 10005 company) (since 1997); Portfolio Manager,
GSAM (since April 1996); Junior Portfolio
Manager, GSAM (1995 - April 1996); Funds
Trading Assistant, GSAM (1993 - 1995); and
Compliance Analyst, Prudential Insurance
(1991 - 1993).
*Amy E. Belanger, 30 Assistant Secretary Assistant Secretary - Goldman Sachs Variable
85 Broad Street Insurance Trust (registered investment
New York, NY 10004 company) (since 1999); Vice President,
Goldman Sachs (since June 1999) Counsel,
Goldman Sachs (since 1998); and Associate,
Dechert Price & Rhoads (September
1996-1998).
</TABLE>
The Trustees and officers of the Trust hold comparable
positions with certain other investment companies of which Goldman Sachs, GSAM
or GSFM is the investment adviser, administrator and/or distributor. As of
February 15, 2000, the Trustees and officers as a group owned less than 1% of
the outstanding shares of beneficial interest of each Fund.
B-58
<PAGE>
The following table sets forth certain information with respect to the
compensation of each Trustee of the Trust for the one-year period ended October
31, 1999:
<TABLE>
<CAPTION>
Total Compensation
From Goldman
Pension or Sachs Trust and the
Aggregate Retirement Goldman Sachs Funds
Compensation Benefits Accrued as Complex
from the Part of Trust's (including the
Funds/2/ Expenses Funds)/3/
-------- -------- ---------
Name of Trustees
<S> <C> <C> <C>
Ashok N. Bakhru/1/ $14,748 $ 0 $136,000
David B. Ford 0 0 0
Douglas C. Grip 0 0 0
John P. McNulty 0 0 0
Mary P. McPherson 11,029 0 101,000
Alan A. Shuch 0 0 0
Jackson W. Smart 11,971 0 101,000
William H. Springer 11,971 0 101,000
Richard P. Strubel 11,971 0 101,000
</TABLE>
- -------------------------
1 Includes compensation as Chairman of the Board of Trustees.
2 Reflects amount paid by Goldman Sachs Trust during fiscal year ended
October 31, 1999.
3 The Goldman Sachs Funds complex consists of Goldman Sachs Trust and Goldman
Sachs Variable Insurance Trust. Goldman Sachs Trust consisted of 50 mutual
funds, including 8 fixed-income funds, on October 31, 1999. Goldman Sachs
Variable Insurance Trust consisted of 16 mutual funds on October 31,
1999.
Class A Shares of the Fund may be sold at net asset value without
payment of any sales charge to Goldman Sachs, its affiliates or their respective
officers, partners, directors or employees (including retired employees and
former partners), any partnership of which Goldman Sachs is a general partner,
any trustee or officer of the Trust and designated family members of any of the
above individuals. The sales load waivers are due to the nature of the investors
and the reduced sales effort that is needed to obtain such investments.
Investment Advisers
-------------------
As of September 1, 1999, the Investment Management Division ("IMD") was
established as a new operating division of Goldman Sachs. This newly created
entity includes GSAM. GSAM, 32 Old Slip, New York, New York 10005, a unit of the
Investment Management Division of Goldman Sachs, serves as the Investment
Adviser to Short Duration Tax-Free Fund, Government Income Fund, Municipal
Income Fund, Core Fixed Income Fund, High Yield Municipal Fund and High Yield
Fund pursuant to a Management Agreement. GSFM, 32 Old Slip, New York, New York
10005, serves as the Investment Adviser to Adjustable Rate Government Fund and
Short Duration Government Fund pursuant to a Management Agreement. GSFM, a
Delaware limited partnership, is an affiliate of Goldman Sachs. GSAMI, 133
Peterborough Court, London EC4A 2BB, England, serves as Investment Adviser to
Global Income Fund pursuant to a Management Agreement. As a company with
unlimited liability under the laws of England, GSAMI is regulated by the
Investment Management Regulatory Organization Limited, a United Kingdom
self-regulatory organization, in the conduct of its investment advisory
business. GSAMI is also an affiliate of
B-59
<PAGE>
Goldman Sachs. See "Service Providers" in the Funds' Prospectuses for a
description of the applicable Investment Adviser's duties as Investment Adviser.
The Goldman Sachs Group, L.P., which controlled the Investment
Advisers, merged into The Goldman Sachs Group, Inc. as a result of an initial
public offering.
Founded in 1869, Goldman Sachs is among the oldest and largest
investment banking firms in the United States. Goldman Sachs is a leader in
developing portfolio strategies and in many fields of investing and financing,
participating in financial markets worldwide and serving individuals,
institutions, corporations and governments. Goldman Sachs also is among the
principal market sources for current and thorough information on companies,
industrial sectors, markets, economies and currencies, and trades and makes
markets in a wide range of equity and debt securities 24 hours a day. The firm
is headquartered in New York and has offices throughout the United States and in
Beijing, Frankfurt, George Town, Hong Kong, London, Madrid, Mexico City, Milan,
Montreal, Osaka, Paris, Sao Paulo, Seoul, Shanghai, Singapore, Sydney, Taipei,
Tokyo, Toronto, Vancouver and Zurich. It has trading professionals throughout
the United States, as well as in London, Tokyo, Hong Kong and Singapore. The
active participation of Goldman Sachs in the world's financial markets enhances
its ability to identify attractive investments. Goldman Sachs has agreed to
permit the Funds to use the name "Goldman Sachs" or a derivative thereof as part
of each Fund's name for as long as a Fund's Management Agreement is in
effect.
The Investment Advisers are able to draw on the substantial research
and market expertise of Goldman Sachs, whose investment research effort is one
of the largest in the industry. The Goldman Sachs Global Investment Research
Department covers approximately 2,200 companies, including approximately 1,000
U.S. corporations in 60 industries. The in-depth information and analyses
generated by Goldman Sachs' research analysts are available to the Investment
Advisers. The Investment Advisers manage money for some of the world's largest
institutional investors.
For more than a decade, Goldman Sachs has been among the top-ranked
firms in Institutional Investor's annual "All-America Research Team" survey. In
addition, many of Goldman Sachs' economists, securities analysts, portfolio
strategists and credit analysts have consistently been highly ranked in
respected industry surveys conducted in the United States and abroad. Goldman
Sachs is also among the leading investment firms using quantitative analytics
(now used by a growing number of investors) to structure and evaluate
portfolios. For example, Goldman Sachs' options evaluation model analyzes each
security's term, coupon and call option, providing an overall analysis of the
security's value relative to its interest risk.
In planning the Tax Exempt Funds' strategies, the portfolio managers
also evaluate and monitor individual issues by using analytical techniques that
have traditionally been applied to corporate bonds and Mortgage-Backed
Securities. In particular, the Investment Adviser's embedded option valuation
model provides a picture of an individual security's relative value and the
portfolio's overall interest rate risk. By constantly reviewing the positions of
securities within the portfolio, the Investment Adviser looks for opportunities
to enhance the Tax Exempt Funds' yields by fine-tuning the portfolio, using
quantitative tools designed for municipal portfolio management. The Investment
Adviser, which managed approximately $5.97 billion in tax-free securities as of
December 31, 1999, has assembled an experienced team of professionals for
selection of the Tax Exempt Funds' portfolio securities.
In structuring Adjustable Rate Government Fund's and Short Duration
Government Fund's respective securities portfolio, the Investment Adviser will
review the existing overall economic and mortgage market trends. The Investment
Adviser will then study yield spreads, the implied volatility and the shape of
the yield curve. The Investment Adviser will then apply this analysis to a list
of eligible securities that meet the respective Fund's investment guidelines.
With respect to Adjustable Rate Government Fund, this analysis is used to plan a
two-part portfolio, which will consist of a core portfolio of ARMs and a
"relative value" portfolio of other mortgage assets
B-60
<PAGE>
that can enhance portfolio returns and lower risk (such as investments in CMO
floating-rate tranches and interest only SMBS).
With respect to Adjustable Rate Government Fund, Short Duration
Government Fund, Government Income Fund, Core Fixed Income Fund and High Yield
Fund, the applicable Investment Adviser expects to utilize Goldman Sachs'
sophisticated option-adjusted analytics to help make strategic asset allocations
within the markets for U.S. Government, Mortgage-Backed Securities and other
securities and to employ this technology periodically to re-evaluate the Funds'
investments as market conditions change. Goldman Sachs has also developed a
prepayment model designed to estimate mortgage prepayments and cash flows under
different interest rate scenarios. Because a Mortgage-Backed Security
incorporates the borrower's right to prepay the mortgage, the Investment Adviser
uses a sophisticated option-adjusted spread (OAS) model to measure expected
returns. A security's OAS is a function of the level and shape of the yield
curve, volatility and the applicable Investment Adviser's expectation of how a
change in interest rates will affect prepayment levels. Since the OAS model
assumes a relationship between prepayments and interest rates, the Investment
Adviser considers it a better way to measure a security's expected return and
absolute and relative values than yield to maturity. In using OAS technology,
the Investment Adviser will first evaluate the absolute level of a security's
OAS, considering its liquidity and its interest rate, volatility and prepayment
sensitivity. The Investment Adviser will then analyze its value relative to
alternative investments and to its own investments. The Investment Adviser will
also measure a security's interest rate risk by computing an option adjusted
duration (OAD). The Investment Adviser believes a security's OAD is a better
measurement of its price sensitivity than cash flow duration, which
systematically misstates portfolio duration. The Investment Adviser also
evaluates returns for different mortgage market sectors and evaluates the credit
risk of individual securities. This sophisticated technical analysis allows the
Investment Adviser to develop portfolio and trading strategies using
Mortgage-Backed Securities that are believed to be superior investments on a
risk-adjusted basis and which provide the flexibility to meet the respective
Fund's duration targets and cash flow pattern requirements.
Because the OAS is adjusted for the differing characteristics of the
underlying securities, the OAS of different Mortgage-Backed Securities can be
compared directly as an indication of their relative value in the market. The
Investment Adviser also expects to use OAS-based pricing methods to calculate
projected security returns under different, discrete interest rate scenarios,
and Goldman Sachs' proprietary prepayment model to generate yield estimates
under these scenarios. The OAS, scenario returns, expected returns, and yields
of securities in the mortgage market can be combined and analyzed in an optimal
risk-return matching framework.
The Investment Adviser will use OAS analytics to choose what they
believe is an appropriate portfolio of investments for Adjustable Rate
Government Fund, Short Duration Government Fund, Government Income Fund and Core
Fixed Income Fund from a universe of eligible investments. In connection with
initial portfolio selections, in addition to using OAS analytics as an aid to
meeting each Fund's particular composition and performance targets, the
Investment Adviser will also take into account important market criteria like
the available supply and relative liquidity of various mortgage securities in
structuring the portfolio.
The Investment Adviser also expects to use OAS analytics to evaluate
the mortgage market on an ongoing basis. Changes in the relative value of
various Mortgage-Backed Securities could suggest tactical trading opportunities
for the Funds. The Investment Adviser will have access to both current market
analysis as well as historical information on the relative value relationships
among different Mortgage-Backed Securities. Current market analysis and
historical information is available in the Goldman Sachs database for most
actively traded Mortgage-Backed Securities.
Goldman Sachs has agreed to provide the Investment Adviser, on a
non-exclusive basis, use of its mortgage prepayment model, OAS model and any
other proprietary services which it now has or may develop, to the extent such
services are made available to other similar customers. Use of these services by
the Investment Advisers with
B-61
<PAGE>
respect to a Fund does not preclude Goldman Sachs from providing these services
to third parties or using such services as a basis for trading for its own
account or the account of others.
The fixed-income research capabilities of Goldman Sachs available to
the Investment Advisers include the Goldman Sachs Fixed Income Research
Department and the Credit Department. The Fixed Income Research Department
monitors developments in U.S. and foreign fixed-income markets, assesses the
outlooks for various sectors of the markets and provides relative value
comparisons, as well as analyzes trading opportunities within and across market
sectors. The Fixed Income Research Department is at the forefront in developing
and using computer-based tools for analyzing fixed-income securities and
markets, developing new fixed-income products and structuring portfolio
strategies for investment policy and tactical asset allocation decisions. The
Credit Department tracks specific governments, regions and industries and from
time to time may review the credit quality of a Fund's investments.
In addition to fixed-income research and credit research, the
Investment Adviser, in managing Global Income Fund, is supported by Goldman
Sachs' economics research. The Economics Research Department, based in London,
conducts economic, financial and currency markets research which analyzes
economic trends and interest and exchange rate movements worldwide. The
Economics Research Department tracks factors such as inflation and money supply
figures, balance of trade figures, economic growth, commodity prices, monetary
and fiscal policies, and political events that can influence interest rates and
currency trends. The success of Goldman Sachs' international research team has
brought wide recognition to its members. The team has earned top rankings in
various external surveys such as Extel, Institutional Investor and Reuters.
These rankings acknowledge the achievements of the firm's economists,
strategists and equity analysts.
In allocating assets in Global Income Fund's portfolio among
currencies, the Investment Adviser will have access to the Global Asset
Allocation Model. The model is based on the observation that the prices of all
financial assets, including foreign currencies, will adjust until investors
globally are comfortable holding the pool of outstanding assets. Using the
model, the Investment Adviser will estimate the total returns from each currency
sector which are consistent with the average investor holding a portfolio equal
to the market capitalization of the financial assets among those currency
sectors. These estimated equilibrium returns are then combined with the
expectations of Goldman Sachs' research professionals to produce an optimal
currency and asset allocation for the level of risk suitable for a Fund given
its investment objectives and criteria.
The Management Agreements provide that GSAM, GSFM and GSAMI, in their
capacity as Investment Advisers may each render similar services to others so
long as the services under the Management Agreements are not impaired thereby.
The Management Agreements were most recently approved by the Trustees of the
Trust, including a majority of the Trustees of the Trust who are not parties to
such agreements or "interested persons" (as such term is defined in the Act) of
any party thereto (the "non-interested Trustees"), on April 27, 1999 except with
respect to the High Yield Municipal Fund for which the Management Agreement was
so approved on February 3, 2000. The applicable Fund's Management Agreement was
approved by the shareholders of Adjustable Rate Government Fund on October 30,
1991, the shareholders of Short Duration Government Fund on March 27, 1989, the
sole initial shareholder of Short Duration Tax-Free Fund on September 25, 1992,
the sole initial shareholder of Core Fixed Income Fund on October 29, 1993, the
sole initial shareholder of High Yield Municipal Fund on March 1, 2000 and the
shareholders of each other Fund on April 21, 1997. Each Management Agreement
will remain in effect until June 30, 2000 and will continue in effect with
respect to the applicable Fund from year to year thereafter provided such
continuance is specifically approved at least annually by (a) the vote of a
majority of the outstanding voting securities of such Fund or a majority of the
Trustees of the Trust, and (b) the vote of a majority of the non-interested
Trustees of the Trust; cast in person at a meeting called for the purpose of
voting on such approval.
B-62
<PAGE>
Each Management Agreement will terminate automatically if assigned (as
defined in the Act). Each Management Agreement is also terminable at any time
without penalty by the Trustees of the Trust or by vote of a majority of the
outstanding voting securities of a Fund on 60 days' written notice to the
applicable Investment Adviser or by the Investment Adviser on 60 days' written
notice to the Trust.
B-63
<PAGE>
Pursuant to the Management Agreements, the Investment Advisers are
entitled to receive the fees set forth below, payable monthly based on such
Fund's average daily net assets. In addition, as of the date of this Additional
Statement the Investment Advisers are voluntarily limiting their management fees
for certain Funds to the annual rates also listed below:
Management Fee Management Fee without
Fund with Limitations Limitations
---- ---------------- -----------
GSAM
Short Duration Tax-Free .35% .40%
Government Income .54% .65%
Municipal Income .50% .55%
Core Fixed Income .40% .40%
High Yield Municipal .55% .55%
High Yield .70% .70%
GSFM
Adjustable Rate Government .40% .40%
Short Duration Government .50% .50%
GSAMI
Global Income .65% .90%
With respect to Government Income, Municipal Income and Global Income
Funds, a Management Agreement combining both advisory and administration
services (and subadvisory services in the case of Global Income Fund) was
adopted effective April 30, 1997. The Management Agreements for the other Funds
previously combined such services. The contractual rate set forth in the table
is the rate payable under the Management Agreements (and, in the case of
Government Income, Municipal Income and Global Income Funds, is identical to the
aggregate advisory, subadvisory and administration fee rate payable by such
Funds under the previously separate investment advisory, subadvisory and
administration agreements).
For the fiscal years ended October 31, 1999, 1998, and 1997, the amounts of
the investment advisory and administration fees incurred by each Fund then in
existence were as follows:
Fund 1999 1998 1997
- ---- ---- ---- ----
Adjustable Rate Government $1,591,935 $1,980,544 $2,293,118
Short Duration Government(1) 1,142,521 765,667 422,632
Short Duration Tax-Free(2) 332,347 186,598 144,157
Government Income(3)(4) 648,124 595,582 134,628
Municipal Income(3)(5) 588,153 463,144 320,868
Core Fixed Income 1,175,776 750,536 334,580
Global Income(3)(6) 3,346,419 1,752,130 1,415,050
High Yield Municipal(7) N/A N/A N/A
High Yield(8) 5,170,565 3,005,936 407,474
- -------------------------
(1) Had expense limitations not been in effect, Short Duration Government Fund
would have paid advisory fees of $807,888 and $528,290 respectively, for
the years ended October 31, 1998 and October 31, 1997.
B-64
<PAGE>
(2) Had expense limitations not been in effect, the Short Duration Tax-Free
Fund would have paid advisory fees of $379,825 and $189,646, respectively,
for the years ended October 31, 1999 and October 31, 1998.
(3) Reflects combined fees under separate investment advisory and
administration agreements which were combined in a Management Agreement
effective April 30, 1997.
(4) Had expense limitations not been in effect, Government Income Fund would
have paid advisory fees of $780,149, $747,673 and $350,034 respectively,
for the years ended October 31, 1999, October 31, 1998 and October 31,
1997.
(5) Had expense limitations not been in effect, the Municipal Income Fund would
have paid advisory fees of $646,968 and $467,578, respectively, for the
years ended October 31, 1999 and October 31, 1998.
(6) For the periods ended October 31, 1998 and October 31, 1997, Global Income
Fund paid GSAMI subadvisory fees of $0. If expense limitations had not been
in effect, Global Income Fund would have paid advisory fees of $4,633,504,
$2,613,060 and $2,158,925, respectively, for the years ended October 31,
1999, October 31, 1998 and October 31, 1997.
(7) As of October 31, 1999, High Yield Municipal Fund had not commenced
operations.
(8) High Yield Fund commenced operations on August 1, 1997. Had expense
limitations not been in effect, High Yield Fund would have paid $3,075,443
and $438,819 for the year ended October 31, 1998 and the period ended
October 31, 1997, respectively.
Each Investment Adviser performs administrative services for the applicable
Funds under the Management Agreement. Such administrative services include,
subject to the general supervision of the Trustees of the Trust, (a) providing
supervision of all aspects of the Funds' non-investment operations (other than
certain operations performed by others pursuant to agreements with the Funds);
(b) providing the Funds, to the extent not provided pursuant to the agreement
with the Trust's custodian, transfer and dividend disbursing agent or agreements
with other institutions, with personnel to perform such executive,
administrative and clerical services as are reasonably necessary to provide
effective administration of the Funds; (c) arranging, to the extent not provided
pursuant to such agreements, for the preparation, at the Funds' expense, of each
Fund's tax returns, reports to shareholders, periodic updating of the Funds'
prospectuses and statements of additional information, and reports filed with
the SEC and other regulatory authorities; (d) providing the Funds, to the extent
not provided pursuant to such agreements, with adequate office space and certain
related office equipment and services; and (e) maintaining all of the Funds'
records other than those maintained pursuant to such agreements.
Activities of Goldman Sachs and Its Affiliates and Other Accounts Managed
-------------------------------------------------------------------------
by Goldman Sachs. The involvement of the Investment Adviser and Goldman Sachs
- ----------------
and their affiliates, in the management of, or their interest in, other accounts
and other activities of Goldman Sachs may present conflicts of interest with
respect to the Funds or impede their investment activities.
Goldman Sachs and its affiliates, including, without limitation, the
Investment Advisers and their advisory affiliates have proprietary interests in,
and may manage or advise with respect to, accounts or funds (including separate
accounts and other funds and collective investment vehicles) which have
investment objectives similar to those of the Funds and/or which engage in
transactions in the same types of securities, currencies and instruments as the
Funds. Goldman Sachs and its affiliates are major participants in the global
currency, equities, swap and fixed-income markets, in each case both on a
proprietary basis and for the accounts of customers. As such, Goldman Sachs and
its affiliates are actively engaged in transactions in the same securities,
currencies, and instruments in which the Funds invest. Such activities could
affect the prices and availability of the securities, currencies, and
instruments in which the Funds invest, which could have an adverse impact on
each Fund's performance. Such transactions, particularly in respect of
proprietary accounts or customer accounts other than those included in the
Investment
B-65
<PAGE>
Advisers' and their advisory affiliates' asset management activities, will be
executed independently of the Funds' transactions and thus at prices or rates
that may be more or less favorable. When the Investment Advisers and their
advisory affiliates seek to purchase or sell the same assets for their managed
accounts, including the Funds, the assets actually purchased or sold may be
allocated among the accounts on a basis determined in their good faith
discretion to be equitable. In some cases, this system may adversely affect the
size or the price of the assets purchased or sold for the Funds.
From time to time, the Funds' activities may be restricted because of
regulatory restrictions applicable to Goldman Sachs and its affiliates, and/or
their internal policies designed to comply with such restrictions. As a result,
there may be periods, for example, when the Investment Advisers, and/or their
affiliates, will not initiate or recommend certain types of transactions in
certain securities or instruments with respect to which the Investment Advisers
and/or their affiliates are performing services or when position limits have
been reached.
In connection with their management of the Funds, the Investment Advisers
may have access to certain fundamental analysis and proprietary technical models
developed by Goldman Sachs and other affiliates. The Investment Advisers will
not be under any obligation, however, to effect transactions on behalf of the
Funds in accordance with such analysis and models. In addition, neither Goldman
Sachs nor any of its affiliates will have any obligation to make available any
information regarding their proprietary activities or strategies, or the
activities or strategies used for other accounts managed by them, for the
benefit of the management of the Funds and it is not anticipated that the
Investment Advisers will have access to such information for the purpose of
managing the Funds. The proprietary activities or portfolio strategies of
Goldman Sachs and its affiliates or the activities or strategies used for
accounts managed by them or other customer accounts could conflict with the
transactions and strategies employed by the Investment Advisers in managing the
Funds.
The results of each Fund's investment activities may differ significantly
from the results achieved by the Investment Advisers and their affiliates for
their proprietary accounts or accounts (including investment companies or
collective investment vehicles) managed or advised by them. It is possible that
Goldman Sachs and its affiliates and such other accounts will achieve investment
results which are substantially more or less favorable than the results achieved
by a Fund. Moreover, it is possible that a Fund will sustain losses during
periods in which Goldman Sachs and its affiliates achieve significant profits on
their trading for proprietary or other accounts. The opposite result is also
possible.
The investment activities of Goldman Sachs and its affiliates for their
proprietary accounts and accounts under their management may also limit the
investment opportunities for the Funds in certain emerging markets in which
limitations are imposed upon the aggregate amount of investment, in the
aggregate or individual issuers, by affiliated foreign investors.
An investment policy committee which may include partners of Goldman Sachs
and its affiliates may develop general policies regarding a Fund's activities,
but will not be involved in the day-to-day management of such Fund. In such
instances, those individuals may, as a result, obtain information regarding the
Fund's proposed investment activities which is not generally available to the
public. In addition, by virtue of their affiliation with Goldman Sachs, any such
member of an investment policy committee will have direct or indirect interests
in the activities of Goldman Sachs and its affiliates in securities, currencies
and investments similar to those in which the Fund invests.
In addition, certain principals and certain employees of the Investment
Advisers are also principals or employees of Goldman Sachs or their affiliated
entities. As a result, the performance by these principals and employees of
their obligations to such other entities may be a consideration of which
investors in the Funds should be aware.
B-66
<PAGE>
The Investment Advisers may enter into transactions and invest in
instruments and, in the case of Core Fixed Income, Global Income and High Yield
Funds, currencies on behalf of the applicable Funds in which customers of
Goldman Sachs serve as the counterparty, principal or issuer. In such cases,
such party's interests in the transaction will be adverse to the interests of
the Funds, and such party may have no incentive to assure that the Funds obtain
the best possible prices or terms in connection with the transactions. Goldman
Sachs and its affiliates may also create, write or issue derivative instruments
for customers of Goldman Sachs or its affiliates, the underlying securities
currencies or instruments of which may be those in which the Funds invest or
which may be based on the performance of a Fund. The Funds may, subject to
applicable law, purchase investments which are the subject of an underwriting or
other distribution by Goldman Sachs or its affiliates and may also enter into
transactions with other clients of Goldman Sachs or its affiliates where such
other clients have interests adverse to those of the Funds. At times, these
activities may cause departments of Goldman Sachs or its affiliates to give
advice to clients that may cause these clients to take actions adverse to the
interests of the client. To the extent affiliated transactions are permitted,
the Funds will deal with Goldman Sachs and its affiliates on an arms-length
basis.
Each Fund will be required to establish business relationships with its
counterparties based on the Fund's own credit standing. Neither Goldman Sachs
nor its affiliates will have any obligation to allow their credit to be used in
connection with a Fund's establishment of its business relationships, nor is it
expected that a Fund's counterparties will rely on the credit of Goldman Sachs
or any of its affiliates in evaluating the Fund's creditworthiness.
From time to time, Goldman Sachs or any of its affiliates may, but is not
required to, purchase and hold shares of a Fund in order to increase the assets
of the Fund. Increasing a Fund's assets may enhance investment flexibility and
diversification and may contribute to economies of scale that tend to reduce a
Fund's expense ratio. Goldman Sachs reserves the right to redeem at any time
some or all of the shares of a Fund acquired for its own account. A large
redemption of shares of a Fund by Goldman Sachs could significantly reduce the
asset size of the Fund, which might have an adverse effect on the Fund's
investment flexibility, portfolio diversification and expense ratio. Goldman
Sachs will consider the effect of redemptions on a Fund and other shareholders
in deciding whether to redeem its shares.
It is possible that a Fund's holding will include securities of entities
for which Goldman Sachs performs investment banking services as well as
securities of entities in which Goldman Sachs makes a market. From time to time,
Goldman Sachs' activities may limit the Funds' flexibility in purchases and
sales of securities. When Goldman Sachs is engaged in and underwriting or other
distribution of securities of an entity, the Funds' investment advisers may be
prohibited from purchasing or recommending the purchase of certain securities of
that entity for the Funds.
B-67
<PAGE>
Distributor and Transfer Agent
- ------------------------------
Goldman Sachs, 85 Broad Street, New York, New York 10004 serves as the
exclusive distributor of shares of the Funds pursuant to a "best efforts"
arrangement as provided by a distribution agreement with the Trust on behalf of
each Fund. Shares of the Funds are offered and sold on a continuous basis by
Goldman Sachs, acting as agent. Pursuant to the distribution agreement, after
the Funds' Prospectuses and periodic reports have been prepared, set in type and
mailed to shareholders, Goldman Sachs will pay for the printing and distribution
of copies thereof used in connection with the offering to prospective investors.
Goldman Sachs will also pay for other supplementary sales literature and
advertising costs. Goldman Sachs has entered into sales agreements with certain
investment dealers and other financial service firms (the "Authorized Dealers")
to solicit subscriptions for Class A, Class B and Class C Shares of each of the
Funds that offer such classes of shares. Goldman Sachs receives a portion of the
sales load imposed on the sale, in the case of Class A Shares, or redemption in
the case of Class B and Class C Shares, of such Fund shares. No Class C Shares
were outstanding during the fiscal year ended 1996. Goldman Sachs retained
approximately the following combined commissions on sales of Class A, B and C
Shares during the following periods:
1999 1998 1997
---- ---- ----
Adjustable Rate Government(1) $11,000 $28,000 $156,000
Short Duration Government(2) 38,000 157,000 63,000
Short Duration Tax-Free(2) 39,000 55,000 6,000
Government Income(3) 111,000 212,000 193,000
Municipal Income(3) 48,000 126,000 57,000
Core Fixed Income(2) 59,000 82,000 14,000
Global Income(3) 233,000 133,000 176,000
High Yield Municipal(4) N/A N/A N/A
High Yield(2) 1,151,000 1,419,000 3,194,000
- ---------------------
(1) Adjustable Rate Government Fund does not offer Class B and C Shares.
(2) Prior to May 1, 1997, May 1, 1997 and August 15, 1997, Short Duration
Government, Short Duration Tax-Free and Core Fixed Income Funds did not
offer Class A and B and C Shares, respectively. High Yield Fund commenced
operations on August 1, 1997 with the exception of Class C Shares which
commenced August 15, 1997.
(3) Prior to May 1, 1996 and August 15, 1997, Government Income, Municipal
Income and Global Income Funds did not offer Class B and Class C Shares,
respectively.
(4) As of October 31, 1999, High Yield Municipal Fund had not commenced
operations.
Goldman Sachs, 4900 Sears Tower, Chicago, IL 60606 serves as the Trust's
transfer and dividend disbursing agent. Under its transfer agency agreement with
the Trust, Goldman Sachs has undertaken with the Trust with respect to each Fund
to (i) record the issuance, transfer and redemption of shares; (ii) provide
confirmations of purchases and redemptions, and quarterly statements, as well as
certain other statements; (iii) provide certain information to the Trust's
custodian and the relevant subcustodian in connection with redemptions; (iv)
provide dividend crediting and certain disbursing agent services; (v) maintain
shareholder accounts; (vi) provide certain state Blue Sky and other information;
(vii) provide shareholders and certain regulatory authorities with tax-related
information; (viii) respond to shareholder inquiries; and (ix) render certain
other miscellaneous services. For its transfer agency services, Goldman Sachs is
entitled to receive a transfer agency fee equal, on an annual basis, to 0.04% of
average daily net assets with respect to each Fund's Institutional and Service
Shares and 0.19% of average daily net assets with respect to each Fund's Class
A, Class B and Class C Shares.
B-68
<PAGE>
As compensation for the services rendered to the Trust by Goldman Sachs as
transfer and dividend disbursing agent and the assumption by Goldman Sachs of
the expenses related thereto, Goldman Sachs received fees for the fiscal years
ended October 31, 1999, 1998, and 1997 from each Fund then in existence as
follows under the fee schedules then in effect:
Fund 1999 1998 1997
- ---- ---- ---- ----
Adjustable Rate Government $209,559 $229,368 $272,449
Short Duration Government 189,585 191,462 77,989
Short Duration Tax-Free 77,953 129,376 61,185
Government Income Fund 221,189 189,925 163,181
Municipal Income 205,929 176,709 152,152
Core Fixed Income 232,250 211,200 85,882
Global Income 615,432 378,171 106,886
High Yield Municipal(1) N/A N/A N/A
High Yield Fund(2) 1,114,821 298,491 27,280
- ------------------------
(1) As of October 31, 1999, High Yield Municipal Fund had not commenced
operations.
(2) High Yield Fund commenced operations on August 1, 1997.
The foregoing distribution and transfer agency agreements each provide that
Goldman Sachs may render similar services to others so long as the services each
provides thereunder to the Funds are not impaired thereby. Each such agreement
also provides that the Trust will indemnify Goldman Sachs against certain
liabilities.
Expenses
- --------
The Trust, on behalf of each Fund, is responsible for the payment of each
Fund's respective expenses. The expenses include, without limitation, the fees
payable to the Investment Adviser, service fees paid to Service Organizations,
the fees and expenses of the Trust's custodian and subcustodians, transfer agent
fees, brokerage fees and commissions, filing fees for the registration or
qualification of the Trust's shares under federal or state securities laws,
expenses of the organization of the Trust, fees and expenses incurred by the
Trust in connection with membership in investment company organizations, taxes,
interest, costs of liability insurance, fidelity bonds or indemnification, any
costs, expenses or losses arising out of any liability of, or claim for damages
or other relief asserted against, the Trust for violation of any law, legal, tax
and auditing fees and expenses (including the cost of legal and certain
accounting services rendered by employees of Goldman Sachs, or its affiliates,
with respect to the Trust), expenses of preparing and setting in type
Prospectuses, Additional Statements, proxy material, reports and notices and the
printing and distributing of the same to the Trust's shareholders and regulatory
authorities, any expenses assumed by a Fund pursuant to its distribution and
service plans, any compensation and expenses of its "non-interested" Trustees
and extraordinary expenses, if any, incurred by the Trust. Except for fees under
any distribution and service, or service plans applicable to a particular class
and transfer agency fees, all Fund expenses are borne on a non-class specific
basis.
The imposition of the Investment Advisers' fee, as well as other operating
expenses, will have the effect of reducing the total return to investors. From
time to time, the Investment Advisers may waive receipt of fees and/or
voluntarily assume certain expenses of a Fund, which would have the effect of
lowering that Fund's overall expense ratio and increasing total return to
investors at the time such amounts are waived or assumed, as the case may be.
B-69
<PAGE>
As of the date of this Additional Statement, the Investment Advisers have
agreed to reduce or limit certain "Other Expenses" (excluding management fees,
service shares fees, distribution and service fees, transfer agency fees, taxes,
interest, brokerage fees and litigation, indemnification and other extraordinary
expenses) to the extent such expenses exceed to the following percentage of each
Fund's average daily net assets:
Fund
- ----
Adjustable Rate Government 0.05%
Short Duration Government 0.00%
Short Duration Tax-Free 0.00%
Government Income 0.00%
Municipal Income 0.00%
Core Fixed Income 0.10%
Global Income 0.00%
High Yield Municipal 0.00%
High Yield 0.02%
Such reductions or limits are calculated monthly on a cumulative basis. The
Investment Advisers may modify or discontinue such expense limitations or the
limitations on the management fees, described above under "Management --
Investment Advisers," in the future at their discretion. For the fiscal years
ended October 31, 1999, October 31, 1998, and October 31, 1997, "Other Expenses"
of each Fund were reduced by the Investment Advisers in the following amounts
under fee expense limitations that were then in effect:
Fund 1999 1998 1997
- ---- ---- ---- ----
Adjustable Rate Government $154,703 $22,059 $191,739
Short Duration Government 304,768 460,255 285,329
Short Duration Tax-Free 209,640 377,665 282,291
Government Income 284,651 472,433 364,989
Municipal Income 179,233 447,257 299,884
Core Fixed Income 103,492 485,499 311,343
Global Income 662,453 325,544 223,969
High Yield Municipal(1) N/A N/A N/A
High Yield Fund(2) 410,832 92,497 200,097
- ----------------------
(1) As of October 31, 1999, High Yield Municipal Fund had not commenced
operations.
(2) High Yield Fund commenced operations on August 1, 1997.
Fees and expenses of legal counsel, registering shares of each Fund,
holding meetings and communicating with shareholders may include an allocable
portion of the cost of maintaining an internal legal and compliance department.
Each Fund may also bear an allocable portion of the costs incurred by the
Investment Advisers in performing certain accounting services not being provided
by the Trust's custodian.
B-70
<PAGE>
Custodian and Sub-Custodians
- ----------------------------
State Street Bank and Trust Company ("State Street"), 1776 Heritage Drive,
North Quincy, Massachusetts 02110, is the custodian of the Trust's portfolio
securities and cash. State Street also maintains the Trust's accounting records.
State Street may appoint domestic and foreign sub-custodians from time to time
to hold certain securities purchased by the Trust in foreign countries and to
hold cash and currencies for the Trust.
Independent Public Accountants
- ------------------------------
For the fiscal year ended October 31, 1999, Arthur Andersen LLP, former
independent public accountants, 225 Franklin Place, Boston, Massachusetts 02110,
served as auditors of the Funds. Ernst & Young LLP, independent public
accountants, 787 Seventh Avenue, New York, New York 10019, have been selected as
auditors of the Funds of the Trust for the fiscal year ending October 31, 2000.
In addition to audit services, Ernst & Young LLP prepares the Funds' federal and
state tax returns, and provides consultation and assistance on accounting,
internal control and related matters.
PORTFOLIO TRANSACTIONS
The portfolio transactions for the Funds are generally effected at a net
price without a broker's commission (i.e., a dealer is dealing with a Fund as
principal and receives compensation equal to the spread between the dealer's
cost for a given security and the resale price of such security). In certain
foreign countries, debt securities in which Core Fixed Income, Global Income and
High Yield Funds may invest are traded on exchanges at fixed commission rates.
In connection with portfolio transactions, the Management Agreement provides
that the Investment Advisers shall attempt to obtain the most favorable
execution and net price available. The Management Agreement provides that, on
occasions when an Investment Adviser deems the purchase or sale of a security to
be in the best interests of a Fund as well as its other customers (including any
other fund or other investment company or advisory account for which the
Investment Advisers or an affiliate act as Investment Adviser), a Fund, to the
extent permitted by applicable laws and regulations, may aggregate the
securities to be sold or purchased for the Fund with those to be sold or
purchased for such other customers in order to obtain the best net price and
most favorable execution. In such event, allocation of the securities so
purchased or sold, as well as the expenses incurred in the transaction, will be
made by the applicable Investment Adviser in the manner it considers to be most
equitable and consistent with its fiduciary obligations to the applicable Fund
and such other customers. In some instances, this procedure may adversely affect
the size and price of the position obtainable for a Fund. The Management
Agreement permits each Investment Adviser, in its discretion, to purchase and
sell portfolio securities to and from dealers who provide the Trust with
brokerage or research services in which dealers may execute brokerage
transactions at a higher cost to the Fund. Brokerage and research services
furnished by firms through which the Funds effect their securities transactions
may be used by the Investment Adviser in servicing other accounts and not all of
these services may be used by the Investment Advisers in connection with the
specific Fund generating the brokerage credits. Such research or other services
may include research reports on companies, industries, and securities; economic
and financial data; financial publications; computer data bases; quotation
equipment and services; and research-oriented computer hardware, software and
other services. The fees received under the Management Agreement are not reduced
by reason of the Investment Adviser receiving such brokerage and research
services.
Such services are used by the Investment Adviser in connection with all of
its investment activities, and some of such services obtained in connection with
the execution of transactions of a Fund may be used in managing other investment
accounts. Conversely, brokers furnishing such services may be selected for the
execution of
B-71
<PAGE>
transactions of such other accounts, whose aggregate assets are far larger than
those of a Fund, and the services furnished by such brokers may be used by the
Investment Adviser in providing management services for the Trust.
In circumstances where two or more broker-dealers offer comparable prices
and execution capability, preference may be given to a broker-dealer which has
sold shares of a Fund as well as shares of other investment companies or
accounts managed by the Investment Adviser. This policy does not imply a
commitment to execute all portfolio transactions through all broker-dealers that
sell shares of the Fund.
Subject to the above considerations, the Investment Adviser may use Goldman
Sachs as a broker for a Fund. In order for Goldman Sachs to effect any portfolio
transactions for a Fund, the commissions, fees or other remuneration received by
Goldman Sachs must be reasonable and fair compared to the commissions, fees or
other remuneration paid to other brokers in connection with comparable
transactions involving similar instruments being purchased or sold on an
exchange during a comparable period of time. This standard would allow Goldman
Sachs to receive no more than the remuneration which would be expected to be
received by an unaffiliated broker in a commensurate arm's-length transaction.
Furthermore, the Trustees, including a majority of the Trustees who are not
"interested" Trustees, have adopted procedures which are reasonably designed to
provide that any commissions, fees, or other remuneration paid to Goldman Sachs
are consistent with the foregoing standard. Brokerage transactions with Goldman
Sachs are also subject to such fiduciary standards as may be imposed upon
Goldman Sachs by applicable law.
B-72
<PAGE>
For the fiscal year ended October 31, 1999, the Funds then in existence paid
approximate brokerage commissions as follows:
<TABLE>
<CAPTION>
Brokerage
Commissions
Total Total Brokerage Paid to
Brokerage Commissions Paid Total Amount of Brokers
Commissions to Affiliated Transaction on which Providing
Paid Persons Commissions Paid3 Research
Fiscal Year Ended October 31,
1999
<S> <C> <C> <C> <C>
Adjustable Rate Government Fund $51,000 $51,000(100%)1 $751,000,000(100%)2 N/A
Short Duration Government Fund 44,000 44,000(100%)1 597,000,000(100%)2 N/A
Short Duration Tax-Free Fund - - - -
Government Income Fund 14,000 14,000(100%)1 16,000,000(100%)2 N/A
Municipal Income Fund 1,000 1,000(100%)1 13,000,000(100%)2 N/A
Core Fixed Income Fund 39,000 39,000(100%)1 364,000,000(100%)2 N/A
Global Income Fund 19,000 19,000(100%)1 400,000,000(100%)2 N/A
High Yield Municipal Fund4 N/A N/A N/A N/A
High Yield Fund - - - -
</TABLE>
- -------------------------------
1 Percentage of total commissions paid.
2 Percentage of total amount of transactions involving the payment of
commissions effected through affiliated persons.
3 Refers to Market Value of Futures Contracts.
4 As of October 31, 1999, High Yield Municipal Fund had not commenced
operations.
B-73
<PAGE>
For the fiscal year ended October 31, 1998 the Funds then in existence paid
approximate brokerage commissions as follows:
<TABLE>
<CAPTION>
Brokerage
Commissions
Total Total Brokerage Paid to
Brokerage Commissions Paid Total Amount of Brokers
Commissions to Affiliated Transaction on which Providing
Paid Persons Commissions Paid3 Research
Fiscal Year Ended October 31, 1998
<S> <C> <C> <C> <C>
Adjustable Rate Government Fund $54,000 $54,000 (100%)1 $1,510,000,000 (100%)2 N/A
Short Duration Government Fund 26,000 26,000 (100%)1 662,000,000 (100%)2 N/A
Short Duration Tax-Free Fund 1,000 1,000 (100%)1 16,000,000 (100%)2 N/A
Government Income Fund 8,000 8,000 (100%)1 171,000,000 (100%)2 N/A
Municipal Income Fund 3,000 3,000 (100%)1 62,000,000 (100%)2 N/A
Core Fixed Income Fund 9,000 9,000 (100%)1 193,000,000 (100%)2 N/A
Global Income Fund 8,000 8,000 (100%)1 128,000,000 (100%)2 N/A
High Yield Municipal Fund4 N/A N/A N/A N/A
High Yield Fund - - - -
</TABLE>
- -------------------------------
1 Percentage of total commissions paid.
2 Percentage of total amount of transactions involving the payment of
commissions effected through affiliated persons.
3 Refers to Market Value of Futures Contracts.
4 As of October 31, 1998, High Yield Municipal Fund had not commenced
operations.
B-74
<PAGE>
For the fiscal year ended October 31, 1997, the Funds then in existence paid
approximate brokerage commissions as follows:
<TABLE>
<CAPTION>
Brokerage
Commissions
Total Total Brokerage Paid to
Brokerage Commissions Paid Total Amount of Brokers
Commissions to Affiliated Transaction on which Providing
Paid Persons Commissions Paid3 Research
<S> <C> <C> <C> <C>
Fiscal Year Ended October 31, 1997
Adjustable Rate Government Fund $61,000 $61,000(100%)1 $739,605,010(100%)2 N/A
Short Duration Government Fund 19,000 19,000(100%)1 494,733,847(100%)2 N/A
Short Duration Tax-Free Fund 0 0 0 0
Government Income Fund 2,400 2,400(100%)1 26,765,840(100%)2 N/A
Municipal Income Fund 1,800 1,800(100%)1 33,112,625(100%)2 N/A
Core Fixed Income Fund 3,000 3,000(100%)1 8,429,994(100%)2 N/A
High Yield Municipal Fund4 N/A N/A N/A N/A
Global Income Fund - - - -
High Yield Fund - - - -
</TABLE>
- ------------------------------
1 Percentage of total commissions paid.
2 Percentage of total amount of transactions involving the payment of
commissions effected through affiliated persons.
3 Refers to Market Value of Futures Contracts.
4 As of October 31, 1997, High Yield Municipal Fund had not commenced
operations.
During the fiscal year ended October 31, 1999, the Funds acquired and sold
securities of their regular broker-dealers: NationsBank Corp., ABN/AMRO Inc.,
Salomon Smith Barney Holdings, Donaldson, Lufkin & Jenrette, Bear Stearns & Co.,
Deutsche Bank, J.P. Morgan & Co., Morgan Stanley Dean Witter and Co., Credit
Suisse First Boston, and Lehman Brothers Holdings.
At October 31, 1999, Short Duration Tax-Free Fund and Municipal Income Fund
held no securities of their regular broker-dealers. As of the same date, Short
Duration Government Fund, Global Income Fund, Adjustable Rate Government Fund,
Government Income Fund, Core Fixed Income Fund and High Yield Fund held the
following amounts of securities of their regular broker-dealers, as defined in
Rule 10b-1 under the Act, or their parents ($ in thousands): Short Duration
Government Fund: ABN/AMRO Inc. ($1,688) and Bear Stearns & Co. ($804); Global
Income Fund: Lehman Brothers Holdings ($4,571) and Deutsche Bank ($5,890);
Adjustable Rate Government Fund: ABN/AMRO Inc. ($3,286) and Bear Stearns & Co.
($1,565); Government Income Fund: ABN/AMRO Inc. ($2,784) and Bear Stearns & Co.
($,1,326); Core Fixed Income Fund: ABN/AMRO Inc. ($8,925), Bear Stearns & Co.
($4,250), Credit Suisse First Boston ($3,087), and J.P. Morgan & Co. ($2,983);
and High Yield Fund: ABN/AMRO Inc. ($3,197) and Bear Stearns & Co.
($1,522).
B-75
<PAGE>
SHARES OF THE TRUST
Each Fund is a series of Goldman Sachs Trust, a Delaware business trust
established by an Agreement and Declaration of Trust dated January 28, 1997. The
Funds were previously series of Goldman Sachs Trust, a Massachusetts business
trust, and were reorganized into the Trust as of April 30, 1997.
The Trustees have authority under the Trust's Declaration of Trust to
create and classify shares of beneficial interest in separate series, without
further action by shareholders. The Trustees also have authority to classify and
reclassify any series of shares into one or more classes of shares. The Act
requires that where more than one class or series of shares exists, each class
or series must be preferred over all other classes or series in respect of
assets specifically allocated to such class or series. As of the date of this
Additional Statement, the Trustees have authorized: (i) the issuance of five
classes of shares of Short Duration Government Fund, Short Duration Tax-Free
Fund, Government Income Fund, Municipal Income Fund, Core Fixed Income Fund,
Global Income Fund, High Yield Municipal Fund and High Yield Fund: Institutional
Shares, Service Shares, Class A Shares, Class B Shares and Class C Shares; and
(ii) the issuance of three classes of shares of Adjustable Rate Government Fund:
Institutional Shares, Service Shares and Class A Shares. Additional series may
be added in the future. As of October 31, 1999, no Class B or C Shares of the
Adjustable Rate Government Fund were outstanding.
Each Institutional Share, Service Share, Class A Share, Class B Share and
Class C Share of a Fund represents a proportionate interest in the assets
belonging to the applicable class of the Fund. All expenses of a Fund are borne
at the same rate by each class of shares, except that fees under the Service
Plan are borne exclusively by Service Shares, fees under Distribution and
Service Plans are borne exclusively by Class A, Class B or Class C Shares and
transfer agency fees are borne at different rates by Class A, Class B or Class C
Shares than Institutional and Service Shares. The Trustees may determine in the
future that it is appropriate to allocate other expenses differently among
classes of shares and may do so to the extent consistent with the rules of the
SEC and positions of the IRS. Each class of shares may have different minimum
investment requirements and be entitled to different shareholder services. With
limited exceptions, shares of a class may only be exchanged for shares of the
same or an equivalent class of another series. See "Shareholder Guide" in the
Prospectus.
Institutional Shares may be purchased at net asset value without a sales
charge for accounts in the name of an investor or institution that is not
compensated by a Fund for services provided to the institution's customers.
Service Shares may be purchased at net asset value without a sales charge
for accounts held in the name of an institution that, directly or indirectly,
provides certain account administration and shareholder liaison services to its
customers, including maintenance of account records and processing orders to
purchase, redeem and exchange Service Shares. Service Shares bear the cost of
account administration fees at the annual rate of up to 0.50% of the average
daily net assets of the Fund attributed to Service Shares.
Class A Shares are sold, with an initial sales charge, through brokers and
dealers who are members of the National Association of Securities Dealers, Inc.
("NASD") and certain other financial service firms that have sales agreements
with Goldman Sachs. Class A Shares of the Funds bear the cost of distribution
(Rule 12b-1) fees at the aggregate rate of up to 0.25% of the average
B-76
<PAGE>
daily net assets of such Class A Shares. With respect to Class A Shares, the
Distributor at its discretion may use compensation for distribution services
paid under the Distribution and Services Plan for personal and account
maintenance services and expenses so long as such total compensation under the
Plan does not exceed the maximum cap on "service fees" imposed by the NASD.
Class B and Class C Shares of the Funds are sold subject to a contingent
deferred sales charge through brokers and dealers who are members of the NASD
and certain other financial services firms that have sales arrangements with
Goldman Sachs. Class B and Class C Shares bear the cost of distribution (Rule
12b-1) fees at the aggregate rate of up to 0.75% of the average daily net assets
attributed to Class B and Class C Shares. Class A (Global Income Fund only),
Class B and Class C Shares also bear the cost of service fees at an annual rate
of up to 0.25% of the average daily net assets attributed to such Shares.
It is possible that an institution or its affiliate may offer different
classes of shares (i.e., Institutional, Service, Class A, Class B and Class C
Shares) to its customers and thus receive different compensation with respect to
different classes of shares of each Fund. Dividends paid by each Fund, if any,
with respect to each class of shares will be calculated in the same manner, at
the same time on the same day and will be in the same amount, except for
differences caused by the fact that the respective account administration,
service and distribution and service fees relating to a particular class will be
borne exclusively by that class. Similarly, the net asset value per share may
differ depending upon the class of shares purchased.
Certain aspects of the shares may be altered, after advance notice to
shareholders, if it is deemed necessary in order to satisfy certain tax
regulatory requirements.
When issued, shares are fully paid and non-assessable. In the event of
liquidation of a Fund, shareholders of that Fund are entitled to share pro rata
in the net assets of the applicable class of the relevant Fund available for
distribution to such shareholders. All shares are freely transferable and have
no preemptive, subscription or conversion rights.
In the interest of economy and convenience, the Trust does not issue
certificates representing the Funds' shares. Instead, the Transfer Agent
maintains a record of each shareholder's ownership. Each shareholder receives
confirmation of purchase and redemption orders from the Transfer Agent. Fund
shares and any dividends and distributions paid by the Funds are reflected in
account statements from the Transfer Agent.
As of February 15, 2000, the following entities owned of record 5% or more
of the outstanding shares of the following Funds: Adjustable Rate Government
Fund (Institutional Class) - Goldman, Sachs & Co., FBO Account #021021365, c/o
Mutual Fund Ops, 85 Broad Street, New York, NY 10004 (18%); State Treasurer Mtp,
941 O Street, Suite 500, Lincoln, NE 68508 (13%); Regents of the University of
Minnesota, 100 Church Street SE, Room 311A, Minneapolis, MN 55455 (10%); and
Goldman, Sachs & Co., FBO Account #030143572, c/o Mutual Fund Ops, 85 Broad
Street, New York, NY 10004 (9%); Short Duration Government Fund (Institutional
Class) - Goldman Sachs Employee Trust, c/o State Street Bank & Trust, attn:
Goldman Trust, 1 Enterprise Drive, N. Quincy, MA 02171 (21%); and GS Trust -
Balanced Strategy, Short Duration Fund, P.O. Box 1713, Boston, MA 02105 (15%);
Short Duration Tax-Free Fund (Institutional Class) - Goldman, Sachs & Co., FBO
Account #021015243, c/o Mutual Fund Ops, 85 Broad Street, New York, NY 10004
(19%); Goldman, Sachs & Co., FBO Account #038856605, c/o Mutual Fund Ops, 85
Broad Street, New York, NY 10004 (6%); Goldman, Sachs & Co., FBO Account
#038106902,
B-77
<PAGE>
c/o Mutual Fund Ops, 85 Broad Street, New York, NY 10004 (7%); and Goldman Sachs
& Co., FBO Account #021021357, c/o Mutual Fund Ops, 85 Broad Street, New York,
NY 10004 (6%); Core Fixed Income Fund (Institutional Class) - GS Trust Growth &
Income Strategy, Omnibus A/C - Core Fixed Income, P.O. Box 1713, Boston, MA
02105 (15%); Vinson and Elkins Lawyers, Retirement Plan, Texas Commerce Bank,
RIMS-10 TCT-315, P.O. Box 2558, Houston, TX 77252 (10%); C-PO2-EB Employee
Benefits, Methodist Medical Center of Illinois, NC Illinois Trust Company, 301
SW Adams Street, P.O. Box 749, Peoria, IL 61652 (7%) and Goldman Sachs & Co.,
FBO Account #021017553, c/o Mutual Fund Ops, 85 Broad Street, New York, NY 10004
(5%); Global Income Fund (Institutional Class) - Goldman Sachs Growth & Income
Strategy, Omnibus A/C - Global Income Fund, P.O. Box 1713, Boston, MA 02105
(16%); Goldman Sachs Growth Strategy, Omnibus A/C - Global Income Fund, P.O. Box
1713, Boston, MA 02105 (6%); and State Street Bank and Trust, GS Profit Sharing
Master Trust, P.O. Box 1992, Boston, MA 02105 (9%); Government Income Fund
(Class A) - Edward Jones & Co., Attn. Mutual Fund Shareholder, 201 Progress
Parkway, Maryland Heights, MO 63043 (9%); and Chase Manhattan Bank Ttee U/A 9-1-
99, Fringe Benefits Mgt. Co., 4 New York Plz., Floor 2, New York, NY 10004 (6%);
and Municipal Income Fund (Class A ) - Edward Jones & Co., Attn: Mutual Fund
Shareholder, 201 Progress Pkwy., Maryland Heights, MO 63043 (31%).
Rule 18f-2 under the Act provides that any matter required to be submitted
by the provisions of the Act or applicable state law, or otherwise, to the
holders of the outstanding voting securities of an investment company such as
the Trust shall not be deemed to have been effectively acted upon unless
approved by the holders of a majority of the outstanding shares of each class or
series affected by such matter. Rule 18f-2 further provides that a class or
series shall be deemed to be affected by a matter unless the interests of each
class or series in the matter are substantially identical or the matter does not
affect any interest of such class or series. However, Rule 18f-2 exempts the
selection of independent public accountants, the approval of principal
distribution contracts and the election of trustees from the separate voting
requirements of Rule 18f-2.
The Trust is not required to hold annual meetings of shareholders and does
not intend to hold such meetings. In the event that a meeting of shareholders is
held, each share of the Trust will be entitled, as determined by the Trustees
without the vote or consent of the shareholders, either to one vote for each
share or to one vote for each dollar of net asset value represented by such
shares on all matters presented to shareholders including the election of
Trustees (this method of voting being referred to as "dollar based voting").
However, to the extent required by the Act or otherwise determined by the
Trustees, series and classes of the Trust will vote separately from each other.
Shareholders of the Trust do not have cumulative voting rights in the election
of Trustees. Meetings of shareholders of the Trust, or any series or class
thereof, may be called by the Trustees, certain officers or upon the written
request of holders of 10% or more of the shares entitled to vote at such
meetings. The Trustees will call a special meeting of shareholders for the
purpose of electing Trustees, if, at any time, less than a majority of Trustees
holding office at the time were elected by shareholders. The shareholders of the
Trust will have voting rights only with respect to the limited number of matters
specified in the Declaration of Trust and such other matters as the Trustees may
determine or may be required by law.
The Declaration of Trust provides for indemnification of Trustees, officers
and agents of the Trust unless the recipient is adjudicated (i) to be liable by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of such person's office; or (ii) not to
have acted in good faith in the reasonable belief that such person's actions
were in the best interest of the Trust. The Declaration of Trust provides that,
if any shareholder or
B-78
<PAGE>
former shareholder of any series is held personally liable solely by reason of
being or having been a shareholder and not because of the shareholder's acts or
omissions or for some other reason, the shareholder or former shareholder (or
heirs, executors, administrators, legal representatives or general successors)
shall be held harmless from and indemnified against all loss and expense arising
from such liability. The Trust, acting on behalf of any affected series, must,
upon request by such shareholder, assume the defense of any claim made against
such shareholder for any act or obligation of the series and satisfy any
judgment thereon from the assets of the series.
The Declaration of Trust permits the termination of the Trust or of any
series or class of the Trust (i) by a majority of the affected shareholders at a
meeting of shareholders of the Trust, series or class; or (ii) by a majority of
the Trustees without shareholder approval if the Trustees determine that such
action is in the best interest of the Trust or its shareholders. The factors and
events that the Trustees may take into account in making such determination
include (i) the inability of the Trust or any successor series or class to
maintain its assets at an appropriate size; (ii) changes in laws or regulations
governing the Trust, series or class or affecting assets of the type in which it
invests; or (iii) economic developments or trends having a significant adverse
impact on their business or operations.
The Declaration of Trust authorizes the Trustees without shareholder
approval to cause the Trust, or any series thereof, to merge or consolidate with
any corporation, association, trust or other organization or sell or exchange
all or substantially all of the property belonging to the Trust or any series
thereof. In addition, the Trustees, without shareholder approval, may adopt a
master-feeder structure by investing all or a portion of the assets of a series
of the Trust in the securities of another open-end investment company with
substantially the same investment objective, restrictions and policies.
The Declaration of Trust permits the Trustees to amend the Declaration of
Trust without a shareholder vote. However, shareholders of the Trust have the
right to vote on any amendment (i) that would affect the voting rights of
shareholders; (ii) that is required by law to be approved by shareholders; (iii)
that would amend the voting provisions of the Declaration of Trust; or (iv) that
the Trustees determine to submit to shareholders.
The Trustees may appoint separate Trustees with respect to one or more
series or classes of the Trust's shares (the "Series Trustees"). Series Trustees
may, but are not required to, serve as Trustees of the Trust or any other series
or class of the Trust. The Series Trustees have, to the exclusion of any other
Trustees of the Trust, all the powers and authorities of Trustees under the
Declaration of Trust with respect to any other series or class.
Shareholder and Trustee Liability
- ---------------------------------
Under Delaware law, the shareholders of the Funds are not generally subject
to liability for the debts or obligations of the Trust. Similarly, Delaware law
provides that a series of the Trust will not be liable for the debts or
obligations of any other series of the Trust. However, no similar statutory or
other authority limiting business trust shareholder liability exists in other
states. As a result, to the extent that a Delaware business trust or a
shareholder is subject to the jurisdiction of courts of such other states, the
courts may not apply Delaware law and may thereby subject the Delaware business
trust shareholders to liability. To guard against this risk, the Declaration of
Trust contains an express disclaimer of shareholder liability for acts or
obligations of a Fund. Notice of such disclaimer will normally be given in each
agreement, obligation or instrument entered into or
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executed by a series or the Trustees. The Declaration of Trust provides for
indemnification by the relevant Fund for all loss suffered by a shareholder as a
result of an obligation of the series. The Declaration of Trust also provides
that a series shall, upon request, assume the defense of any claim made against
any shareholder for any act or obligation of the series and satisfy any judgment
thereon. In view of the above, the risk of personal liability of shareholders of
a Delaware business trust is remote.
In addition to the requirement under Delaware law, the Declaration of Trust
provides that shareholders of a series may bring a derivative action on behalf
of the series only if the following conditions are met: (a) shareholders
eligible to bring such derivative action under Delaware law who hold at least
10% of the outstanding shares of the series, or 10% of the outstanding shares of
the class to which such action relates, shall join in the request for the
Trustees to commence such action; and (b) the Trustees must be afforded a
reasonable amount of time to consider such shareholder request and to
investigate the basis of such claim. The Trustees will be entitled to retain
counsel or other advisers in considering the merits of the request and may
require an undertaking by the shareholders making such request to reimburse the
Fund for the expense of any such advisers in the event that the Trustees
determine not to bring such action.
The Declaration of Trust further provides that the Trustees will not be
liable for errors of judgment or mistakes of fact or law, but nothing in the
Declaration of Trust protects a Trustee against liability to which he or she
would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
or her office.
NET ASSET VALUE
Under the Act, the Trustees of the Trust are responsible for determining in
good faith the fair value of securities of the Funds. In accordance with
procedures adopted by the Trustees of the Trust, the net asset value per share
of each class of each Fund is calculated by determining the value of the net
assets attributable to each class of that Fund and dividing by the number of
outstanding shares of that class. All securities are valued as of the close of
regular trading on the New York Stock Exchange (normally, but not always, 4:00
p.m. New York time) on each Business Day. The term "Business Day" means any day
the New York Stock Exchange is open for trading, which is Monday through Friday
except for holidays. The New York Stock Exchange is closed on the following
holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day
(observed), Good Friday, Memorial Day (observed), Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
In the event that the New York Stock Exchange or the national securities
exchange on which stock options are traded adopt different trading hours on
either a permanent or temporary basis, the Trustees will reconsider the time at
which net asset value is computed. In addition, each Fund may compute its net
asset value as of any time permitted pursuant to any exemption, order or
statement of the SEC or its staff.
For the purpose of calculating the net asset value of the Funds,
investments are valued under valuation procedures established by the Trustees.
Portfolio securities, for which accurate market quotations are readily
available, other than money market instruments, are valued via electronic feeds
to the custodian bank containing dealer-supplied bid quotations or bid
quotations from a recognized pricing service. Securities for which a pricing
service either does not supply a quotation or supplies a quotation that is
believed by the Investment Adviser to be in accurate, will be valued based on
bid-side broker quotations. Securities for which the custodian bank is unable to
obtain an external price
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as provided above or with respect to which the Investment Adviser believes an
external price does not reflect accurate market values, will be valued by the
Investment Adviser in good faith based on valuation models that take into
account spread and daily yield changes on government securities (i.e., matrix
pricing). Other Securities are valued as follows: (a) overnight repurchase
agreements will be valued at cost; (b) term repurchase agreements (i.e., those
whose maturity exceeds seven days) and swaps, caps, collars and floors will be
valued at the average of the bid quotations obtained daily from at least one
dealer; (c) debt securities with a remaining maturity of 60 days or less are
valued at amortized cost, which the Trustees have determined to approximate fair
value; (d) spot and forward foreign currency exchange contracts will be valued
using a pricing service such as Reuters (if quotations are unavailable from a
pricing service or, if the quotations by the Investment Adviser are believed to
be inaccurate, the contracts will be valued by calculating the mean between the
last bid and asked quotations supplied by at least one independent dealers in
such contracts); (e) exchange-traded options and futures contracts will be
valued by the custodian bank at the last sale price on the exchange where such
contracts and options are principally traded if accurate quotations are readily
available; and (f) over-the-counter options will be valued by a broker
identified by the portfolio manager/trader.
All other securities, including those for which a pricing service supplies
no exchange quotation or a quotation that is believed by the portfolio
manager/trader to be inaccurate, will be valued at fair value as stated in the
valuation procedures which were approved by the Board of Trustees.
The value of all assets and liabilities expressed in foreign currencies
will be converted into U.S. dollar values at current exchange rates of such
currencies against U.S. dollars last quoted by any major bank. If such
quotations are not available, the rate of exchange will be determined in good
faith by or under procedures established by the Board of Trustees.
Generally, trading in securities on European and Far Eastern securities
exchanges and on over-the-counter markets is substantially completed at various
times prior to the close of business on each Business Day in New York (i.e., a
day on which the New York Stock Exchange is open for trading). In addition,
European or Far Eastern securities trading generally or in a particular country
or countries may not take place on all Business Days in New York. Furthermore,
trading takes place in various foreign markets on days which are not Business
Days in New York and days on which the Funds' net asset values are not
calculated. Such calculation does not take place contemporaneously with the
determination of the prices of the majority of the portfolio securities used in
such calculation. The impact of events that occur after the publication of
market quotations used by a Fund to price its securities but before the close of
regular trading on the New York Stock Exchange will normally not be reflected in
a Fund's next determined net asset value unless the Trust, in its discretion,
makes an adjustment in light of the nature and materiality of the event, its
effect on Fund operations and other relevant factors.
The proceeds received by each Fund and each other series of the Trust from
the issue or sale of its shares, and all net investment income, realized and
unrealized gain and proceeds thereof, subject only to the rights of creditors,
will be specifically allocated to such Fund and constitute the underlying assets
of that Fund or series. The underlying assets of each Fund will be segregated on
the books of account, and will be charged with the liabilities in respect of
such Fund and with a share of the general liabilities of the Trust. Expenses of
the Trust with respect to the Funds and the other series of the Trust are
generally allocated in proportion to the net asset values of the respective
Funds or series except where allocations of direct expenses can otherwise be
fairly made.
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TAXATION
The following is a summary of the principal U.S. federal income, and
certain state and local, tax considerations regarding the purchase, ownership
and disposition of shares in the Funds. This summary does not address special
tax rules applicable to certain classes of investors, such as tax-exempt
entities, insurance companies and financial institutions. Each prospective
shareholder is urged to consult his or her own tax adviser with respect to the
specific federal, state, local and foreign tax consequences of investing in the
Funds. This summary is based on the laws in effect on the date of this
Additional Statement, which are subject to change.
General
- -------
Each Fund is treated as a separate entity for tax purposes, has elected to
be treated as a regulated investment company and intends to qualify for such
treatment for each taxable year under Subchapter M of the Code. To qualify as
such, a Fund must satisfy certain requirements relating to the sources of its
income, diversification of its assets and distribution of its income to
shareholders. As a regulated investment company, a Fund will not be subject to
federal income or excise tax on any net investment income and net realized
capital gains that are distributed to its shareholders in accordance with
certain timing requirements of the Code.
There are certain tax requirements that all Funds must follow in order to
avoid federal taxation. In its efforts to adhere to these requirements, the
Funds may have to limit their investment activities in some types of
instruments. Qualification as a regulated investment company under the Code
requires, among other things, that (a) a Fund derive at least 90% of its gross
income (including tax-exempt interest) for its taxable year from dividends,
interest, payments with respect to securities loans and gains from the sale or
other disposition of stocks or securities, or foreign currencies or other income
(including but not limited to gains from options, futures and forward contracts)
derived with respect to its business of investing in such stock, securities or
currencies (the "90% gross income test"); and (b) a Fund diversify its holdings
so that, at the close of each quarter of its taxable year, (i) at least 50% of
the market value of its total (gross) assets is comprised of cash, cash items,
U.S. Government Securities, securities of other regulated investment companies
and other securities limited in respect of any one issuer to an amount not
greater in value than 5% of the value of the Fund's total assets and to not more
than 10% of the outstanding voting securities of such issuer, and (ii) not more
than 25% of the value of its total (gross) assets is invested in the securities
of any one issuer (other than U.S. Government Securities and securities of other
regulated investment companies) or two or more issuers controlled by a Fund and
engaged in the same, similar or related trades or businesses.
Future Treasury regulations could provide that qualifying income under the
90% gross income test will not include gains from foreign currency transactions
that are not directly related to Core Fixed Income, Global Income or High Yield
Fund's principal business of investing in stock or securities or options and
futures with respect to stock or securities. Using foreign currency positions or
entering into foreign currency options, futures and forward contracts for
purposes other than hedging currency risk with respect to securities in Core
Fixed Income, Global Income or High Yield Fund's portfolio or anticipated to be
acquired may not qualify as "directly related" under these tests.
As a regulated investment company, a Fund will not be subject to U.S.
federal income tax on the portion of its income and capital gains that it
distributes to its shareholders in any taxable year for which it distributes, in
compliance with the Code's timing and other requirements, at least 90% of its
"investment company taxable income" (which includes dividends, taxable interest,
taxable original issue discount income, market discount income, income from
securities lending, net short-term
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capital gain in excess of net long-term capital loss, certain net realized
foreign exchange gains, and any other taxable income other than "net capital
gain" as defined below and is reduced by deductible expenses) and at least 90%
of the excess of its gross tax-exempt interest income, if any, over certain
disallowed deductions ("net tax-exempt interest"). A Fund may retain for
investment its "net capital gain" (which consists of the excess of its net
long-term capital gain over its net short-term capital loss). However, if a Fund
retains any investment company taxable income or net capital gain, it will be
subject to tax at regular corporate rates on the amount retained. If a Fund
retains any net capital gain, that Fund may designate the retained amount as
undistributed net capital gain in a notice to its shareholders who, if subject
to U.S. federal income tax on long-term capital gains, (i) will be required to
include in income for federal income tax purposes, as long-term capital gain,
their shares of such undistributed amount; and (ii) will be entitled to credit
their proportionate shares of the tax paid by that Fund against their U.S.
federal income tax liabilities, if any, and to claim refunds to the extent the
credit exceeds such liabilities. For U.S. federal income tax purposes, the tax
basis of shares owned by a shareholder of the Fund will be increased by an
amount equal under current law to 65% of the amount of undistributed net capital
gain included in the shareholder's gross income. Each Fund intends to distribute
for each taxable year to its shareholders all or substantially all of its
investment company taxable income (if any), net capital gain and any net
tax-exempt interest. Exchange control or other foreign laws, regulations or
practices may restrict repatriation of investment income, capital or the
proceeds of securities sales by foreign investors such as Core Fixed Income or
Global Income Fund and may therefore make it more difficult for Core Fixed
Income or Global Income Fund to satisfy the distribution requirements described
above, as well as the excise tax distribution requirements described below.
However, Core Fixed Income Fund and Global Income Fund generally expect to be
able to obtain sufficient cash to satisfy such requirements from new investors,
the sale of securities or other sources. If for any taxable year a Fund does not
qualify as a regulated investment company, it will be taxed on all of its
investment company taxable income and net capital gain at corporate rates, its
net tax-exempt interest (if any) may be subject to the alternative minimum tax,
and its distributions to shareholders will be taxable as ordinary dividends to
the extent of its current and accumulated earnings and profits.
For federal income tax purposes, each Fund is permitted to carry forward a
net capital loss in any year to offset its own capital gains, if any, during the
eight years following the year of the loss. At October 31, 1999 the Funds had
approximately the following amounts of capital loss carry forwards:
<TABLE>
<CAPTION>
Years of
Amount Expiration
------ ----------
<S> <C> <C>
Adjustable Rate Government Fund $50,033,000 2000-2007
Short Duration Government Fund 17,097,000 2002-2007
Short Duration Tax-Free Fund 3,843,000 2002-2007
Government Income Fund 2,397,000 2007
Municipal Income Fund 2,045,000 2007
Core Fixed Income Fund 6,931,000 2007
Global Income Fund 4,047,000 2007
High Yield Fund 10,760,000 2006-2007
</TABLE>
These amounts are available to be carried forward to offset future capital
gains to the extent permitted by the Code and applicable tax regulations.
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<PAGE>
In order to avoid a 4% federal excise tax, each Fund must distribute or be
deemed to have distributed by December 31 of each calendar year at least 98% of
its taxable ordinary income for such year, at least 98% of the excess of its
capital gains over its capital losses (generally computed on the basis of the
one-year period ending on October 31 of such year) and 100% of any taxable
ordinary income and the excess of capital gains over capital losses for the
prior year that were not distributed during such year and on which the Fund did
not pay federal income tax. The Funds anticipate that they will generally make
timely distributions of income and capital gains in compliance with these
requirements so that they will generally not be required to pay the excise tax.
For federal income tax purposes, dividends declared by a Fund in October,
November or December as of a record date in such a month that are actually paid
in January of the following year will be treated as if they were received by
shareholders on December 31 of the year declared.
The Tax Exempt Funds may purchase Municipal Securities together with the
right to resell the securities to the seller at an agreed-upon price or yield
within a specified period prior to the maturity date of the securities. Such a
right to resell is commonly known as a "put" and is also referred to as a
"standby commitment." The Tax Exempt Funds may pay for a standby commitment
either separately, in cash, or in the form of a higher price for the securities
that are acquired subject to the standby commitment, thus increasing the cost of
securities and reducing the yield otherwise available. Additionally, the Tax
Exempt Funds may purchase beneficial interests in Municipal Securities held by
trusts, custodial arrangements or partnerships and/or combined with third-party
puts and other types of features such as interest rate swaps; those investments
may require the Fund to pay "tender fees" or other fees for the various features
provided.
The IRS has issued a revenue ruling to the effect that, under specified
circumstances, a registered investment company will be the owner of tax-exempt
municipal obligations acquired subject to a put option. The IRS has also issued
private letter rulings to certain taxpayers (which do not serve as precedent for
other taxpayers) to the effect that tax-exempt interest received by a regulated
investment company with respect to such obligations will be tax-exempt in the
hands of the company and may be distributed to its shareholders as
exempt-interest dividends. The IRS has subsequently announced that it will not
ordinarily issue advance ruling letters as to the identity of the true owner of
property in cases involving the sale of securities or participation interests
therein if the purchaser has the right to cause the security, or the
participation interest therein, to be purchased by either the seller or a third
party. Each of the Tax Exempt Funds intends to take the position that it is the
owner of any municipal obligations acquired subject to a standby commitment or
other third party put and that tax-exempt interest earned with respect to such
municipal obligations will be tax-exempt in its hands. There is no assurance
that the IRS will agree with such position in any particular case. Additionally,
the federal income tax treatment of certain other aspects of these investments,
including the treatment of tender fees paid by these Funds, in relation to
various regulated investment company tax provisions is unclear. However, the
Investment Adviser intends to manage the Tax Exempt Funds' portfolios in a
manner designed to minimize any adverse impact from the tax rules applicable to
these investments.
Gains and losses on the sale, lapse, or other termination of options and
futures contracts, options thereon and certain forward contracts (except certain
foreign currency options, forward contracts and futures contracts) will
generally be treated as capital gain and losses. Certain of the futures
contracts, forward contracts and options held by a Fund will be required to be
"marked-to-market" for federal income tax purposes, that is, treated as having
been sold at their fair market value on the last day of the Fund's taxable year.
These provisions may require a Fund to recognize income
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or gains without a concurrent receipt of cash. Any gain or loss recognized on
actual or deemed sales of these futures contracts, forward contracts or options
will (except for certain foreign currency options, forward contracts, and
futures contracts) be treated as 60% long-term capital gain or loss and 40%
short-term capital gain or loss. As a result of certain hedging transactions
entered into by a Fund, that Fund may be required to defer the recognition of
losses on futures or forward contracts and options or underlying securities or
foreign currencies to the extent of any unrecognized gains on related positions
held by the Fund and the characterization of gains or losses as long-term or
short-term may be changed. The tax provisions described above applicable to
options, futures and forward contracts may affect the amount, timing, and
character of a Fund's distributions to shareholders. Certain tax elections may
be available to the Funds to mitigate some of the unfavorable consequences
described in this paragraph.
Section 988 of the Code contains special tax rules applicable to certain
foreign currency transactions and instruments that may affect the amount, timing
and character of income, gain or loss recognized by Core Fixed Income Fund,
Global Income Fund and High Yield Fund. Under these rules, foreign exchange gain
or loss realized by these Funds with respect to foreign currencies and certain
futures and options thereon, foreign currency-denominated debt instruments,
foreign currency forward contracts, and foreign currency-denominated payables
and receivables will generally be treated as ordinary income or loss, although
in some cases elections may be available that would alter this treatment. If a
net foreign exchange loss treated as ordinary loss under Section 988 of the Code
were to exceed a Fund's investment company taxable income (computed without
regard to such loss) for a taxable year, the resulting loss would not be
deductible by the Fund or its shareholders in future years. Net loss, if any,
from certain foreign currency transactions or instruments could exceed net
investment income otherwise calculated for accounting purposes with the result
being either no dividends being paid or a portion of Core Fixed Income Fund's,
Global Income Fund's or High Yield Fund's dividends being treated as a return of
capital for tax purposes, nontaxable to the extent of a shareholder's tax basis
in his or her shares and, once such basis is exhausted, generally giving rise to
capital gains.
Core Fixed Income, Global Income and High Yield Funds may be subject to
foreign taxes on income (possibly including, in some cases, capital gains) from
foreign securities. Tax conventions between certain countries and the United
States may reduce or eliminate such taxes in some cases. Because more than 50%
of Global Income Fund's total assets at the close of any taxable year will
generally consist of stock or securities of foreign corporations, Global Income
Fund will generally qualify to file an election with the IRS pursuant to which
shareholders of Global Income Fund would be required to (i) include in ordinary
gross income (in addition to taxable dividends actually received) their pro rata
shares of foreign income taxes paid by Global Income Fund that are treated as
income taxes under U.S. tax regulations (which excludes, for example, stamp
taxes, securities transaction taxes, and similar taxes) even though not actually
received by such shareholders; and (ii) treat such respective pro rata portions
as foreign income taxes paid by them. Global Income Fund may or may not make
this election for any particular taxable year. Core Fixed Income and High Yield
Funds will not satisfy the 50% requirement described above and, therefore, will
not make this election. Core Fixed Income and High Yield Funds and, if it does
not make the election, Global Income Fund will, however, be entitled to deduct
such taxes in computing the amounts they are required to distribute.
If Global Income Fund makes this election, its shareholders may then deduct
such pro rata portions of qualified foreign taxes in computing their taxable
incomes, or, alternatively, use them as foreign tax credits, subject to
applicable limitations, against their U.S. federal income taxes.
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Shareholders who do not itemize deductions for federal income tax purposes will
not, however, be able to deduct their pro rata portion of qualified foreign
taxes paid by Global Income Fund, although such shareholders will be required to
include their shares of such taxes in gross income if Global Income Fund makes
the election referred to above.
If a shareholder chooses to take a credit for the foreign taxes deemed paid
by such shareholder as a result of any such election by Global Income Fund, the
amount of the credit that may be claimed in any year may not exceed the same
proportion of the U.S. tax against which such credit is taken which the
shareholder's taxable income from foreign sources (but not in excess of the
shareholder's entire taxable income) bears to his or her entire taxable income.
For this purpose, distributions from long-term and short-term capital gains or
foreign currency gains by Global Income Fund will generally not be treated as
income from foreign sources. This foreign tax credit limitation may also be
applied separately to certain specific categories of foreign-source income and
the related foreign taxes. As a result of these rules, which have different
effects depending upon each shareholder's particular tax situation, certain
shareholders of Global Income Fund may not be able to claim a credit for the
full amount of their proportionate shares of the foreign taxes paid by the Fund.
Shareholders who are not liable for U.S. federal income taxes, including
tax-exempt shareholders, will ordinarily not benefit from this election. Each
year, if any, that Global Income Fund files the election described above, its
shareholders will be notified of the amount of (i) each shareholder's pro rata
share of qualified foreign income taxes paid by Global Income Fund; and (ii) the
portion of Fund dividends which represents income from each foreign country.
If Core Fixed Income, Global Income or High Yield Funds acquire stock
(including, under proposed regulations, an option to acquire stock such as is
inherent in a convertible bond) in certain foreign corporations ("passive
foreign investment companies") that receive at least 75% of their annual gross
income from passive sources (such as interest, dividends, rents, royalties or
capital gain) or hold at least 50% of their assets in investments producing such
passive income, the Fund could be subject to federal income tax and additional
interest charges on "excess distributions" received from such companies or gain
from the sale of such stock in such companies, even if all income or gain
actually received by the Fund is timely distributed to its shareholders. The
Fund would not be able to pass through to its shareholders any credit or
deduction for such a tax. Certain elections may, if available, ameliorate these
adverse tax consequences, but any such election would require the Fund to
recognize taxable income or gain without the concurrent receipt of cash. Core
Fixed Income, Global Income and High Yield Funds may limit and/or manage their
holdings in passive foreign investment companies to minimize their tax liability
or maximize their return from these investments.
A Fund's investment in zero coupon securities, deferred interest
securities, capital appreciation bonds or other securities bearing original
issue discount or, if a Fund elects to include market discount in income
currently, market discount, as well as any "mark-to-market" gain from certain
options, futures or forward contracts, as described above, will generally cause
it to realize income or gain prior to the receipt of cash payments with respect
to these securities or contracts. In order to obtain cash to enable it to
distribute this income or gain, maintain its qualification as a regulated
investment company and avoid federal income or excise taxes, a Fund may be
required to liquidate portfolio securities that it might otherwise have
continued to hold.
Investment in lower-rated securities may present special tax issues for a
Fund to the extent actual or anticipated defaults may be more likely with
respect to such securities. Tax rules are not entirely clear about issues such
as when a Fund may cease to accrue interest, original issue discount,
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or market discount; when and to what extent deductions may be taken for bad
debts or worthless securities; how payment received on obligations in default
should be allocated between principal and income; and whether exchanges of debt
obligations in a workout context are taxable. These and other issues will be
addressed by a Fund, in the event it invests in such securities, in order to
seek to eliminate or minimize any adverse tax consequences.
The federal income tax rules applicable to mortgage dollar rolls and
interest rate and currency swaps, floors, caps and collars are unclear in
certain respects, and a Fund may also be required to account for these
instruments under tax rules in a manner that, under certain circumstances, may
limit its transactions in these instruments.
Taxable U.S. Shareholders - Distributions
Tax Exempt Funds. Each Tax Exempt Fund expects to qualify to pay
"exempt-interest dividends," as defined in the Code. To qualify to pay
exempt-interest dividends, the applicable Fund must, at the close of each
quarter of its taxable year, have at least 50% of the value of its total assets
invested in Municipal Securities whose interest is excluded from gross income
under Section 103(a) of the Code. In purchasing Municipal Securities, each Tax
Exempt Fund intends to rely on opinions of nationally recognized bond counsel
for each issue as to the excludability of interest on such obligations from
gross income for federal income tax purposes. A Tax Exempt Fund will not
undertake independent investigations concerning the tax-exempt status of such
obligations, nor does it guarantee or represent that bond counsels' opinions are
correct. Bond counsels' opinions will generally be based in part upon covenants
by the issuers and related parties regarding continuing compliance with federal
tax requirements. Tax laws not only limit the purposes for which tax-exempt
bonds may be issued and the supply of such bonds, but also contain numerous and
complex requirements that must be satisfied on a continuing basis in order for
bonds to be and remain tax-exempt. If the issuer of a bond or a user of a
bond-financed facility fails to comply with such requirements at any time,
interest on the bond could become taxable, retroactive to the date the
obligation was issued. In that event, a portion of a Tax Exempt Fund's
distributions attributable to interest the Fund received on such bond for the
current year and for prior years could be characterized or recharacterized as
taxable income. The availability of tax-exempt obligations and the value of a
Tax Exempt Fund's portfolio may be affected by restrictive federal income tax
legislation enacted in recent years or by similar, future legislation. If a Tax
Exempt Fund satisfies the applicable requirements, dividends paid by the Fund
which are attributable to tax exempt interest on Municipal Securities and
designated by the Fund as exempt-interest dividends in a written notice mailed
to its shareholders within 60 days after the close of its taxable year may be
treated by shareholders as items of interest excludable from their gross income
under Section 103(a) of the Code. Exempt-interest dividends a Tax Exempt Fund
receives from other regulated investment companies, including exempt-interest
dividends on auction rate preferred securities of such companies held by a Fund,
are treated as interest on Municipal Securities and may be distributed by a Tax
Exempt Fund as exempt-interest dividends. The recipient of tax-exempt income is
required to report such income on his or her federal income tax return. The Code
provides that interest on indebtedness incurred or continued to purchase or
carry shares of a Tax Exempt Fund is not deductible to the extent attributable
to exempt-interest dividends.
Although all or a substantial portion of the dividends paid by a Tax Exempt
Fund may be excluded by shareholders of such Fund from their gross income for
federal income tax purposes, each Tax Exempt Fund may purchase specified private
activity bonds, the interest from which (including a Fund's distributions
attributable to such interest) may be a preference item for purposes
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of the federal alternative minimum tax (both individual and corporate). All
exempt-interest dividends from a Tax Exempt Fund, whether or not attributable to
private activity bond interest, may increase a corporate shareholder's
liability, if any, for corporate alternative minimum tax, and will be taken into
account in determining the extent to which a shareholder's Social Security or
certain railroad retirement benefits are taxable.
The Tax Exempt Funds are not intended to constitute a balanced investment
program and are not designed for investors seeking capital appreciation or
maximum tax-exempt income irrespective of fluctuations in principal. Shares of
the Tax Exempt Funds would not be suitable for tax-exempt institutions and may
not be suitable for retirement plans qualified under Section 401 of the Code,
H.R. 10 plans and individual retirement accounts since such plans and accounts
are generally tax-exempt and, therefore, would not gain any additional benefit
from the Funds' dividends being tax-exempt. In addition, the Tax Exempt Funds
may not be an appropriate investment for persons or entities that are
"substantial users" of facilities financed by private activity bonds or "related
persons" thereof. "Substantial user" is defined under U.S. Treasury Regulations
to include a non-exempt person which regularly uses a part of such facilities in
its trade or business and whose gross revenues derived with respect to the
facilities financed by the issuance of bonds are more than 5% of the total
revenues derived by all users of such facilities, which occupies more than 5% of
the usable area of such facilities or for which such facilities or a part
thereof were specifically constructed, reconstructed or acquired. "Related
persons" include certain related natural persons, affiliated corporations,
partnerships and its partners and an S corporation and its shareholders. A
shareholder is advised to consult his or her tax adviser with respect to whether
exempt-interest dividends retain the exclusion under Section 103(a) if such
shareholder would be treated as a "substantial user" under Section 147(a)(1)
with respect to some or all of the tax-exempt obligations held by a Tax Exempt
Fund.
All Funds. Distributions from investment company taxable income, as defined
above, are taxable to shareholders who are subject to tax as ordinary income
whether paid in cash or reinvested in additional shares. Taxable distributions
include distributions from any Fund, including the Tax-Exempt Funds, that are
attributable to (i) taxable income, including but not limited to dividends,
taxable bond interest, recognized market discount income, original issue
discount income accrued with respect to taxable bonds, income from repurchase
agreements, income from securities lending, income from dollar rolls, income
from interest rate or currency swaps, caps, floors and collars, and a portion of
the discount from certain stripped tax-exempt obligations or their coupons; or
(ii) capital gains from the sale of securities or other investments (including
from the disposition of rights to when-issued securities prior to issuance) or
from options, futures or certain forward contracts. Any portion of such taxable
distributions that is attributable to a Fund's net capital gain, as defined
above, may be designated by the Fund as a "capital gain dividend," taxable to
shareholders as long-term capital gain whether received in cash or additional
shares and regardless of the length of time their shares of a Fund have been
held.
It is expected that distributions made by the Funds will ordinarily not
qualify for the dividends-received deduction for corporations because qualifying
distributions may be made only from a Fund's dividend income that it receives
from stock in U.S. domestic corporations. The Funds do not intend to purchase
stock of domestic corporations other than in limited instances, including
investments in investment companies, distributions from which may in rare cases
qualify as dividends for this purpose. The dividends-received deduction, if
available, is reduced to the extent the shares with respect to which the
dividends are received are treated as debt-financed under the federal income tax
law and is eliminated if the shares are deemed to have been held for less than a
B-88
<PAGE>
minimum period, generally 46 days. Receipt of certain distributions qualifying
for the deduction may result in reduction of the tax basis of the corporate
shareholder's shares and may give rise to or increase its liability for federal
corporate alternative minimum tax.
Distributions in excess of a Fund's current and accumulated earnings and
profits, as computed for federal income tax purposes, will first reduce a
shareholder's basis in his or her shares and, after the shareholder's basis is
reduced to zero, will generally constitute capital gains to a shareholder who
holds his or her shares as capital assets.
Shareholders receiving a distribution in the form of newly issued shares
will be treated for U.S. federal income tax purposes as receiving a distribution
in an amount equal to the amount of cash that they would have received had they
elected to receive cash and will have a cost basis in the shares received equal
to such amount.
After the close of each calendar year, each Fund will inform shareholders
of the federal income tax status of its dividends and distributions for such
year, including the portion of such dividends, if any, that qualifies as tax-
exempt or as capital gain, the portion, if any, that should be treated as a tax
preference item for purposes of the federal alternative minimum tax and the
foreign tax credits, if any, associated with such dividends. Shareholders who
have not held shares of a Tax-Exempt Fund for such Fund's full taxable year may
have designated as tax-exempt or as a tax preference item a percentage of
distributions which is not equal to the actual amount of tax-exempt income or
tax preference item income earned by the Fund during the period of their
investment in Fund.
All distributions, whether received in shares or in cash, as well as
redemptions and exchanges, must be reported by each shareholder who is required
to file a U.S. federal income tax return.
Different tax treatment, including penalties on certain excess
contributions and deferrals, certain pre-retirement and post-retirement
distributions, and certain prohibited transactions is accorded to accounts
maintained as qualified retirement plans. Shareholders should consult their tax
advisers for more information.
Taxable U.S. Shareholders -- Sale of Shares
When a shareholder's shares are sold, redeemed or otherwise disposed of in
a transaction that is treated as a sale for tax purposes, the shareholder will
generally recognize gain or loss equal to the difference between the
shareholder's adjusted tax basis in the shares and the cash, or fair market
value of any property, received. (To aid in computing your tax basis, a
shareholder should generally retain its account statements for the period that
it held shares). Assuming the shareholder holds the shares as a capital asset at
the time of such sale, such gain or loss should be capital in character, and
long-term if the shareholder has a tax holding period for the shares of more
than one year, otherwise short-term, subject to the rules described below.
Shareholders should consult their own tax advisers with reference to their
B-89
<PAGE>
particular circumstances to determine whether a redemption (including an
exchange) or other disposition of Fund shares is properly treated as a sale for
tax purposes, as is assumed in this discussion. All or a portion of a sales
charge paid in purchasing Class A shares of a Fund cannot be taken into account
for purposes of determining gain or loss on the redemption or exchange of such
shares within 90 days after their purchase to the extent shares of that Fund or
another fund are subsequently acquired without payment of a sales charge
pursuant to the reinvestment or exchange privilege. Any disregarded portion of
such charge will result in an increase in the shareholder's tax basis in the
shares subsequently acquired. If a shareholder received a capital gain dividend
with respect to shares and such shares have a tax holding period of six months
or less at the time of the sale or redemption, then any loss the shareholder
realizes on the sale or redemption will be treated as a long-term capital loss
to the extent of such capital gain dividend. Also, any losses realized by
shareholders who dispose of shares of Short Duration Tax-Free or Municipal
Income Funds with a tax holding period of six months or less are disallowed to
the extent of any exempt-interest dividends received with respect to such
shares. Additionally, any loss realized on a sale or redemption of shares of a
Fund may be disallowed under "wash sale" rules to the extent the shares disposed
of are replaced with other shares of the same Fund within a period of 61 days
beginning 30 days before and ending 30 days after the shares are disposed of,
such as pursuant to a dividend reinvestment in shares of the Fund. If
disallowed, the loss will be reflected in an adjustment to the basis of the
shares acquired.
Backup Withholding
Each Fund will be required to report to the IRS all taxable distributions,
as well as gross proceeds from the redemption or exchange of Fund shares, except
in the case of certain exempt recipients, i.e., corporations and certain other
investors distributions to which are exempt from the information reporting
provisions of the Code. Under the backup withholding provisions of Code Section
3406 and applicable Treasury regulations, all such reportable distributions and
proceeds may be subject to backup withholding of federal income tax at the rate
of 31% in the case of non-exempt shareholders who fail to furnish the Funds with
their correct taxpayer identification number ("TIN") and with certain required
certifications or if the IRS or a broker notifies the Funds that the number
furnished by the shareholder is incorrect or that the shareholder is subject to
backup withholding as a result of failure to report interest or dividend income.
However, any taxable distributions from Short Duration Tax-Free Fund or
Municipal Income Fund will not be subject to backup withholding if the
applicable Fund reasonably estimates that at least 95% of its distributions will
be exempt-interest dividends. A Fund may refuse to accept an application that
does not contain any required taxpayer identification number or certification
that the number provided is correct. If the backup withholding provisions are
applicable, any such distributions and proceeds, whether taken in cash or
reinvested in shares, will be reduced by the amounts required to be withheld.
Any amounts withheld may be credited against a shareholder's U.S. federal income
tax liability. If a shareholder does not have a TIN, it should apply for one
immediately by contacting the local office of the Social Security Administration
or the Internal revenue (IRS). Backup withholding could apply to payments
relating to a shareholder's account while it is waiting receipt of a TIN.
Special rules apply for certain entities. For example, for an account
established under a Uniform Gifts or Transfers to Minors Act, the TIN of the
minor should be furnished. Investors should consult their tax advisers about the
applicability of the backup withholding provisions.
Non-U.S. Shareholders
The foregoing discussion relates solely to U.S. federal income tax law as
it applies to "U.S. persons" (i.e., U.S. citizens and residents and U.S.
domestic corporations, partnerships, trusts and
B-90
<PAGE>
estates) subject to tax under such law. Dividends from investment company
taxable income distributed by a Fund to a shareholder who is not a U.S. person
will be subject to U.S. withholding tax at the rate of 30% (or a lower rate
provided by an applicable tax treaty) unless the dividends are effectively
connected with a U.S. trade or business of the shareholder, in which case the
dividends will be subject to tax on a net income basis at the graduated rates
applicable to U.S. individuals or domestic corporations. Distributions of net
capital gain, including amounts retained by a Fund which are designated as
undistributed capital gains, to a shareholder who is not a U.S. person will not
be subject to U.S. federal income or withholding tax unless the distributions
are effectively connected with the shareholder's trade or business in the United
States or, in the case of a shareholder who is a nonresident alien individual,
the shareholder is present in the United States for 183 days or more during the
taxable year and certain other conditions are met. Non-U.S. shareholders may
also be subject to U.S. withholding tax on deemed income resulting from any
election by Global Income Fund to treat qualified foreign taxes it pays as
passed through to shareholders (as described above), but they may not be able to
claim a U.S. tax credit or deduction with respect to such taxes.
Any capital gain realized by a shareholder who is not a U.S. person upon a
sale or redemption of shares of a Fund will not be subject to U.S. federal
income or withholding tax unless the gain is effectively connected with the
shareholder's trade or business in the United States, or in the case of a
shareholder who is a nonresident alien individual, the shareholder is present in
the United States for 183 days or more during the taxable year and certain other
conditions are met.
Non-U.S. persons who fail to furnish a Fund with an IRS Form W-8 or
acceptable substitute may be subject to backup withholding at the rate of 31% on
capital gain dividends and the proceeds of redemptions and exchanges. Each
shareholder who is not a U.S. person should consult his or her tax adviser
regarding the U.S. and non-U.S. tax consequences of ownership of shares of and
receipt of distributions from a Fund.
State and Local Taxes
A Fund may be subject to state or local taxes in certain jurisdictions in
which the Fund may be deemed to be doing business. A state income (and possibly
local income and/or intangible property) tax exemption is generally available to
the extent (if any) a Fund's distributions are derived from interest on (or, in
the case of intangible property taxes, the value of its assets is attributable
to) certain U.S. Government obligations and/or tax-exempt municipal obligations
issued by or on behalf of the particular state or a political subdivision
thereof, provided in some states that certain thresholds for holdings of such
obligations and/or reporting requirements are satisfied. In addition, in those
states or localities which have income tax laws, the treatment of a Fund and its
shareholders under such laws may differ from their treatment under federal
income tax laws, and investment in a Fund may have tax consequences for
shareholders different from those of a direct investment in such Fund's
portfolio securities. Shareholders should consult their own tax advisers
concerning these matters.
PERFORMANCE INFORMATION
Each Fund may from time to time quote or otherwise use yield and total
return information in advertisements, shareholder reports or sales literature.
Thirty-day yield and average annual total return values are computed pursuant to
formulas specified by the SEC. Each Fund may also from time to time quote
distribution rates in reports to shareholders and in sales literature.
B-91
<PAGE>
Thirty-day yield is derived by dividing net investment income per share
earned during the period by the maximum public offering price per share on the
last day of such period. Yield is then annualized by assuming that yield is
realized each month for 12 months and is reinvested every six months. Net
investment income per share is equal to the dividends and interest earned during
the period, reduced by accrued expenses for the period. The calculation of net
investment income for these purposes may differ from the net investment income
determined for accounting purposes.
Tax equivalent yield represents the yield an investor would have to earn to
equal, after taxes, a Tax Exempt Fund's tax-free yield. Tax equivalent yield is
calculated by dividing a Tax Exempt Fund's tax-exempt yield by one minus a
stated federal and/or state tax rate.
Distribution rate for a specified period is calculated by annualizing
distributions of net investment income for such period and dividing this amount
by the net asset value per share or maximum public offering price on the last
day of the period.
Average annual total return for a specified period is derived by
calculating the actual dollar amount of the investment return on a $1,000
investment made at the maximum public offering price applicable to the relevant
class (i.e., net asset value in the case of each class other than Class A) at
the beginning of the period, and then calculating the annual compounded rate of
return which would produce that amount, assuming a redemption (and payment of
any contingent deferred sales charge) at the end of the period. This calculation
assumes a complete redemption of the investment. It also assumes that all
dividends and distributions are reinvested at net asset value on the
reinvestment dates during the period.
Year-by-year total return and cumulative total return for a specified
period are each derived by calculating the percentage rate required to make a
$1,000 investment (made at the maximum public offering price per share with all
distributions reinvested) at the beginning of such period equal to the actual
total value of such investment at the end of such period. The table set forth
below indicates the total return (capital charges plus reimbursement of all
distributions) on a hypothetical investment of $1,000 in a Fund for the periods
indicated.
Total return calculations for Class A Shares reflect the effect of paying
the maximum initial sales charge. Investment at a lower sales charge would
result in higher performance figures. Total return calculations for Class B and
Class C Shares reflect deduction of the applicable CDSC imposed upon redemption
of Class B and Class C Shares held for the applicable period. Each Fund may also
from time to time advertise total return on a cumulative, average, year-by-year
or other basis for various specified periods by means of quotations, charts,
graphs or schedules. In addition, each Fund may furnish total return
calculations based on investments at various sales charge levels or at NAV. Any
performance information which is based on a Fund's NAV per Share would be
reduced if any applicable sales charge were taken into account. In addition to
the above, each Fund may from time to time advertise its performance relative to
certain averages, performance rankings, indices, other information prepared by
recognized mutual fund statistical services and investments for which reliable
performance information is available. The Fund's performance quotations do not
reflect any fees charged by an Authorized Dealer, Service Organization or other
financial intermediary to its customer accounts in connection with investments
in the Funds.
The following table presents 30-day yield, tax equivalent yield (Short
Duration Tax-Free and Municipal Income Funds only), distribution rate and
average annual total return (capital plus reinvestment of all distributions) for
each class of shares outstanding for the periods indicated.
B-92
<PAGE>
Thirty-day yield, tax equivalent yield (Short Duration Tax- Free and
Municipal Income Funds only), distribution rate and average annual total return
are calculated separately for each class of shares in existence of each Fund.
Each class of shares of each Fund is subject to different fees and expenses and
may have different returns for the same period. Any performance data for Class
A, Class B or Class C Shares which is based upon a Fund's net asset value per
share would be reduced if a sales charge were taken into account.
The average annual total return calculation reflects a maximum initial
sales charge of 1.5% for Class A Shares of Adjustable Rate Government Fund; 2.0%
for Class A Shares of Short Duration Government and Short Duration Tax-Free
Funds; and 4.5% for Class A Shares of Government Income, Municipal Income, Core
Fixed Income, Global Income, High Yield Municipal and High Yield Funds; the
assumed deferred sales charge for Class B Shares (2% maximum declining to 0%
after three years for the Short Duration Government and Short Duration Tax-Free
Funds and 5% maximum declining to 0% after six years for the Government Income,
Municipal Income, Core Fixed Income, Global Income, High Yield Municipal and
High Yield Funds); and the assumed deferred sales charge for Class C Shares (1%
if redeemed within 12 months of purchase).
The Service Shares of Global Income Fund commenced operations on March 12,
1997; the Service Shares of Government Income and Municipal Income Funds
commenced operations on August 15, 1997. The Service Shares of these Funds had
no operating or performance history prior thereto. However, in accordance with
interpretive positions expressed by the staff of the SEC, each of these Funds
has adopted the performance records of its respective Class A Shares from that
Class's inception date (August 2, 1991, February 10, 1993 and July 20, 1993,
respectively) to the inception dates of the Service Shares stated above.
Quotations of performance data of these Funds relating to this period include
the performance record of the applicable Class A Shares (excluding the impact of
any applicable front-end sales charge). The performance records of the
applicable Class A Shares reflect the expenses actually incurred by the Fund.
These expenses include any asset-based sales charges (i.e., fees under
distribution and service plans) imposed and other operating expenses. Total
return quotations are calculated pursuant to SEC-approved methodology.
As of October 31, 1999 the High Yield Municipal Fund had not commenced
operations. Accordingly, no performance information is provided for such Fund.
B-93
<PAGE>
YIELD
<TABLE>
<CAPTION>
Investment Period
30-Days Ended 10/31/99
----------------------
SEC 30-Day Pro-Forma
Fund Yield Yield(1)
- ---- ----- --------
<S> <C> <C>
Adjustable Rate Government Fund
Class A Shares
(assumes 1.5% sales charge) 4.94% 4.87%
Institutional Shares 5.43% 5.37%
Service Shares 4.92% 4.86%
Short Duration Government Fund
Class A Shares
(assumes 2.0% sales charge) 5.53% 5.40%
Class B Shares 5.04% 4.91%
Class C Shares 4.90% 4.76%
Institutional Shares 6.05% 5.91%
Service Shares 5.55% 5.41%
Short Duration Tax-Free Fund
Class A Shares
(assumes 2.0% sales charge) 4.52% 4.30%
Class B Shares 4.00% 3.76%
Class C Shares N/A N/A
Institutional Shares 5.01% 4.79%
Service Shares 4.51% 4.29%
Government Income Fund
Class A Shares
(assumes 4.5% sales charge) 5.74% 5.34%
Class B Shares 5.26% 4.84%
Class C Shares 5.26% 4.84%
Institutional Shares N/A N/A
Service Shares N/A N/A
</TABLE>
B-94
<PAGE>
YIELD
<TABLE>
<CAPTION>
Investment Period
30-Days Ended 10/31/99
----------------------
SEC 30-Day Pro-Forma
Fund Yield Yield(1)
- ---- ----- --------
<S> <C> <C>
Municipal Income Fund
Class A Shares
(assumes 4.5% sales charge) 4.45% 4.23%
Class B Shares 3.90% 3.67%
Class C Shares 3.90% 3.67%
Institutional Shares 5.06% 4.83%
Service Shares N/A N/A
Core Fixed Income
Class A Shares
(assumes 4.5% sales charge) 6.17% 6.07%
Class B Shares 5.71% 5.61%
Class C Shares 5.72% 5.62%
Institutional Shares 6.87% 6.77%
Service Shares 6.37% 6.27%
Global Income Fund
Class A Shares
(assumes 4.5% sales charge) 3.69% 3.25%
Class B Shares 3.37% 2.91%
Class C Shares 3.37% 2.91%
Institutional Shares 4.52% 4.05%
Service Shares 4.02% 3.55%
High Yield Municipal Fund(2)
Class A Shares
(assumes 4.5% sales charge) N/A N/A
Class B Shares N/A N/A
Class C Shares N/A N/A
Institutional Shares N/A N/A
Service Shares N/A N/A
High Yield Fund
Class A Shares
(assumes 4.5% sales charge) 9.68% 9.54%
Class B Shares 9.36% 9.22%
Class C Shares 9.36% 9.22%
Institutional Shares 10.56% 10.41%
Service Shares N/A N/A
</TABLE>
B-95
<PAGE>
DISTRIBUTION RATE
<TABLE>
<CAPTION>
Investment Period
30-Days Ended 10/31/99
----------------------
Pro-Forma
30-Day Distribution
Fund Distribution Rate Rate(1)
- ---- ----------------- ----
<S> <C> <C>
Adjustable Rate Government Fund
Class A Shares
assumes no sales charge 5.10% 5.06%
Institutional Shares 5.50% 5.46%
Service Shares 4.99% 4.95%
Short Duration Government Fund
Class A Shares
assumes no sales charge 5.47% 5.34%
Class B Shares 4.87% 4.59%
Class C Shares 4.72% 4.59%
Institutional Shares 5.87% 5.74%
Service Shares 5.37% 5.24%
Short Duration Tax-Free Fund
Class A Shares
assumes no sales charge 3.73% 3.46%
Class B Shares 3.13% 2.71%
Class C Shares 2.98% 2.71%
Institutional Shares 4.13% 3.86%
Service Shares 3.63% 3.36%
Government Income Fund
Class A Shares
assumes no sales charge 5.44% 5.09%
Class B Shares 4.69% 4.35%
Class C Shares 4.69% 4.35%
Institutional Shares 5.84% 5.49%
Service Shares 5.34% 4.99%
</TABLE>
B-96
<PAGE>
<TABLE>
<CAPTION>
Investment Period
30-Days Ended 10/31/99
----------------------
Pro-Forma
30-Day Distribution
Fund Distribution Rate Rate(1)
- ---- ----------------- ----
<S> <C> <C>
Municipal Income Fund
Class A Shares
assumes no sales charge 4.27% 4.07%
Class B Shares 3.51% 3.31%
Class C Shares 3.52% 3.32%
Institutional Shares 4.67% 4.47%
Service Shares 4.19% 3.99%
Core Fixed Income
Class A Shares
assumes no sales charge 5.44% 5.40%
Class B Shares 4.69% 4.65%
Class C Shares 4.69% 4.65%
Institutional Shares 5.83% 5.79%
Service Shares 5.34% 5.30%
Global Income Fund
Class A Shares
assumes no sales charge 4.62% 4.24%
Class B Shares 4.13% 3.76%
Class C Shares 4.11% 3.73%
Institutional Shares 5.29% 4.91%
Service Shares 4.78% 4.40%
High Yield Municipal Fund(2)
Class A Shares
assumes no sales charge N/A N/A
Class B Shares N/A N/A
Class C Shares N/A N/A
Institutional Shares N/A N/A
Service Shares N/A N/A
High Yield Fund
Class A Shares
assumes no sales charge 9.09% 9.03%
Class B Shares 8.32% 8.26%
Class C Shares 8.33% 8.27%
</TABLE>
B-97
<PAGE>
<TABLE>
<CAPTION>
Investment Period
30-Days Ended 10/31/99
----------------------
Pro-Forma
30-Day Distribution
Fund Distribution Rate Rate(1)
- ---- ----------------- ----
<S> <C> <C>
Institutional Shares 9.48% 9.42%
Service Shares 8.98% 8.92%
</TABLE>
B-98
<PAGE>
TAX-EQUIVALENT YIELD(3)
<TABLE>
<CAPTION>
Investment Period
30-Days Ended 10/31/99
----------------------
Pro-Forma
Tax-Equivalent Tax-Equivalent
Fund Yield Yield(1)
- ---- ----- -----
<S> <C> <C>
Short Duration Tax-Free Fund(3)
Class A Shares
assumes no sales charge 7.48% 7.12%
Class B Shares 6.62% 6.23%
Class C Shares N/A N/A
Institutional Shares 8.29% 7.93%
Service Shares 7.47% 7.10%
Municipal Income Fund(3)
Class A Shares
Assumes no sales charge 7.37% 7.00%
Class B Shares 6.46% 6.08%
Class C Shares 6.46% 6.08%
Institutional Shares 8.38% 8.00%
Service Shares N/A N/A
High Yield Municipal Fund(2)
Class A Shares
Assumes no sales charge N/A N/A
Class B Shares N/A N/A
Class C Shares N/A N/A
Institutional Shares N/A N/A
Service Shares N/A N/A
</TABLE>
- -------------------------------
(1) Yield, distribution rate and tax equivalent yield if the applicable
Investment Adviser had not voluntarily agreed to limit its advisory fees
and to maintain expenses at a specified level.
(2) As of October 31, 1999, the High Yield Municipal Fund had not commenced
operations. Accordingly, no yield or distribution rate information is
provided for such Fund.
(3) The tax-equivalent rate of Short Duration Tax-Free Fund and Municipal
Income Fund is computed based on the 39.6% federal income tax rate.
The above tables should not be considered a representation of future
performance.
B-99
<PAGE>
VALUE OF $1,000 INVESTMENT
(TOTAL RETURN)
<TABLE>
<CAPTION>
Average Annual
--------------------------------------------------------------
Investment Investment With Fee Without Fee
Fund Date Period Reductions Reductions
---- and/or and/or
Expense Expense
Limitations Limitations
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Adjustable Rate Government Fund
Institutional Shares 7/17/911a ended 10/31/99 5.30% 5.20%
one year ended
11/1/98 10/31/99 5.06% 5.03%
five years ended
11/1/94 10/31/99 5.89% 5.82%
Service Shares 3/27/971b ended 10/31/99 4.64% 4.62%
11/1/98 one year ended 4.65% 4.61%
10/31/99
Class A Shares 5/15/951c ended 10/31/99
assumes 1.5% sales charge 5.04% 4.82%
assumes no sales charge 5.41% 5.18%
11/1/98 one year ended
10/31/99
assumes 1.5% sales charge 3.05% 3.01%
assumes no sales charge 4.65% 4.61%
</TABLE>
B-100
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Short Duration Government Fund
Institutional Shares 8/15/882a ended 10/31/99 6.75% 6.38%
one year ended
11/1/98 10/31/99 2.49% 2.36%
five years ended
11/1/94 10/31/99 6.38% 6.10%
11/1/89 ten years
ended 10/31/99 6.36% 6.07%
Service Shares 4/10/962b ended 10/31/99 5.35% 5.10%
11/1/98 one year ended 1.97% 1.85%
10/31/99
Class A Shares 5/1/972c ended 10/31/99
assumes 2.0% sales charge 4.14% 3.73%
assumes no sales charge 4.99% 4.57%
11/1/98 one year ended
10/31/99
assumes 2.0% sales charge (0.04)% (0.17)%
assumes no sales charge 1.97% 1.85%
Class B Shares 5/1/972c ended 10/31/99 4.02% 3.59%
11/1/98 one year ended (0.47)% (0.75)%
10/31/99
Class C Shares 8/15/972d ended 10/31/99 3.65% 3.39%
11/1/98 one year ended 0.19% (0.06)%
10/31/99
Short Duration Tax-Free Fund
Institutional Shares 10/1/923a ended 10/31/99 4.13% 3.59%
11/1/98 one year ended 1.50% 1.23%
10/31/99
</TABLE>
B-101
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
11/1/94 five years ended 4.51% 3.97%
10/31/99
Service Shares 9/20/943b ended 10/31/99 3.82% 3.31%
11/1/98 one year ended 0.89% 0.63%
10/31/99
11/1/94 five years ended 3.98% 3.46%
10/31/99
Class A Shares 5/1/973c ended 10/31/99
assumes 2.0% sales charge 2.91% 2.18%
assumes no sales charge 3.73% 3.00%
11/1/98 one year ended
10/31/99
assumes 2.0% sales charge (1.04)% (1.31)%
assumes no sales charge 1.00% 0.73%
Class B Shares 5/1/973c ended 10/31/99 2.70% 1.96%
11/1/98 one year ended (1.52)% (1.93)%
10/31/99
Class C Shares 8/15/973d ended 10/31/99 2.47% 1.90%
11/1/98 one year ended (0.66)% (0.92)%
10/31/99
Government Income Fund
Class A Shares 2/10/934a ended 10/31/99
assume 4.5% sales charge 5.49% 3.77%
assumes no sales charge 6.22% 4.48%
11/1/98 one year ended
10/31/99
assumes 4.5% sales charge (5.08)% (5.41)%
assumes no sales charge (0.63)% (0.97)%
11/1/94 five years ended
10/31/99
assumes 4.5% sales charge 6.46% 5.30%
assumes no sales charge 7.43% 6.27%
</TABLE>
B-102
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Class B Shares 5/1/964b ended 10/31/99 4.62% 3.95%
11/1/98 one year ended (6.23)% (6.57)%
10/31/99
Class C Shares 8/15/974c ended 10/31/99 4.23% 3.71%
11/1/98 one year ended (2.28)% (2.62)%
10/31/99
Institutional Shares 8/15/974c ended 10/31/99 5.31% 4.79%
11/1/98 one year ended (0.23)% (0.57)%
10/31/99
Service Shares 2/10/934c ended 10/31/99 6.08% 4.39%
11/1/98 one year ended (1.01)% (1.35)%
10/31/99
11/1/944c five years ended
10/31/99 7.25% 6.15%
Municipal Income Fund
Class A Shares 7/20/935a ended 10/31/99
assumes 4.5% sales charge 3.90% 3.10%
assumes no sales charge 4.66% 3.86%
11/1/98 one year ended
10/31/99
assumes 4.5% sales charge (8.76)% (8.94)%
assumes no sales charge (4.46)% (4.64)%
11/1/94 five years ended
10/31/99
assumes 4.5% sales charge 5.34% 4.72%
assumes no sales charge 6.32% 5.69%
Class B Shares 5/1/965b ended 10/31/99 3.15% 2.77%
11/1/98 one year ended
10/31/99 (9.85)% (10.39)%
Class C Shares 8/15/975c ended 10/31/99 1.48% 1.07%
</TABLE>
B-103
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
11/1/98 one year ended (6.05)% (6.24)%
10/31/99
Institutional Shares 8/15/975c ended 10/31/99 2.57% 2.19%
11/1/98 one year ended (4.07)% (4.26)%
10/31/99
Service 7/20/935c ended 10/31/99 4.63% 3.87%
11/1/98 one year ended (4.49)% (4.68)%
10/31/99
11/1/94 five years ended 6.28% 5.70%
10/31/99
Core Fixed Income
Institutional Shares 1/5/946a ended 10/31/99 6.11% 5.67%
11/1/98 one year ended
10/31/99 (0.37)% (0.41)%
11/1/94 five years ended 7.81% 7.47%
10/31/99
Service Shares 3/13/966b ended 10/31/99 5.76% 5.54%
11/1/98 one year ended (0.87)% (0.90)%
10/31/99
Class A Shares 5/1/976c ended 10/31/99
assumes 4.5% sales charge 3.99% 3.64%
assumes no sales charge 5.93% 5.58%
11/1/98 one year ended
10/31/99
assumes 4.5% sales charge (5.13)% (5.16)%
assumes no sales charge (0.68)% (0.72)%
Class B Shares 5/1/976c ended 10/31/99 3.88% 3.66%
11/1/98 one year ended (6.40)% (6.44)%
10/31/99
Class C Shares 8/15/976d ended 10/31/99 4.06% 3.87%
</TABLE>
B-104
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
11/1/98 one year ended (2.49)% (2.52)%
10/31/99
Global Income Fund7a
Class A Shares 8/2/917b ended 10/31/99
assumes 4.5% sales charge 6.84% 6.50%
assumes no sales charge 7.44% 7.10%
11/1/98 one year ended
10/31/99
assumes 4.5% sales charge (5.60)% (5.96)%
assumes no sales charge (1.14)% (1.51)%
11/1/94 five years ended
10/31/99
assumes 4.5% sales charge 8.04% 7.65%
assumes no sales charge 9.03% 8.64%
Class B Shares 5/1/967c ended 10/31/99 5.91% 5.59%
11/1/98 one year ended (6.65)% (7.02)%
10/31/99
Institutional Shares 8/1/957d ended 10/31/99 8.79% 8.36%
11/1/98 one year ended (0.49)% (0.87)%
10/31/99
Service Shares 8/2/917e ended 10/31/99 7.48% 7.14%
11/1/98 one year ended
10/31/99 (1.06)% (1.43)%
11/1/94 five years ended
10/31/99 9.09% 8.71%
Class C Shares 8/15/977f ended 10/31/99 5.29% 4.90%
11/1/98 one year ended (2.66)% (3.03)%
10/31/99
High Yield Municipal Fund8a
Class A Shares N/A N/A
assumes 4.5% sales charge N/A N/A
assumes no sales charge N/A N/A
</TABLE>
B-105
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Class B Shares N/A N/A
Class C Shares N/A N/A
Institutional Shares N/A N/A
Service Shares N/A N/A
High Yield Fund
Class A Shares 8/1/979a ended 10/31/99
assumes 4.5% sales charge 1.77% 1.55%
assumes no sales charge 3.87% 3.65%
11/1/98 one year ended
10/31/99
assumes 4.5% sales charge 3.21% 3.16%
assumes no sales charge 8.06% 8.00%
Class B Shares 8/1/979a ended 10/31/99 1.76% 1.67%
11/1/98 one year ended 2.01% 1.95%
10/31/99
Class C Shares 8/15/979b ended 10/31/99 3.22% 3.14%
11/1/98 one year ended 6.19% 6.13%
10/31/99
Institutional Shares 8/1/979a ended 10/31/99 4.26% 4.16%
11/1/98 one year ended 8.49% 8.43%
10/31/99
Service Shares 8/1/979a ended 10/31/99 3.76% 3.61%
11/1/98 one year ended
10/31/99 7.95% 7.89%
</TABLE>
- -----------------------------
1a Institutional Shares of Adjustable Rate Government Fund commenced
operations on July 17, 1991.
1b Service Shares of Adjustable Rate Government Fund commenced operations on
March 27, 1997.
1c Class A shares of Adjustable Rate Government Fund commenced operations on
May 15, 1995.
B-106
<PAGE>
2a Institutional Shares of Short Duration Government Fund commenced operations
on August 15, 1988.
2b Service Shares of Short Duration Government Fund commenced operations on
April 10, 1996.
2c Class A and Class B Shares of Short Duration Government Fund commenced
operations on May 1, 1997.
2d Class C Shares of Short Duration Government Fund commenced operations on
August 15, 1997.
3a Institutional Shares of Short Duration Tax-Free Fund commenced operations
on October 1, 1992.
3b Service Shares of Short Duration Tax-Free Fund commenced operations on
September 20, 1994.
3c Class A and Class B Shares of Short Duration Tax-Free Fund commenced
operations on May 1, 1997.
3d Class C Shares of Short Duration Tax-Free Fund commenced operations on
August 15, 1997.
4a Class A Shares of Government Income Fund commenced operations on February
10, 1993.
4b Class B Shares of Government Income Fund commenced operations on May 1,
1996.
4c Class C, Institutional and Service Shares of Government Income Fund
commenced operations on August 15, 1997. Performance data for Service
Shares prior to August 15, 1997 is that of Class A Shares (excluding the
impact of front-end sales charges applicable to Class A Shares since
Service Shares are not subject to any sales charges). Performance of Class
A Shares reflects the expenses applicable to the Fund's Class A Shares. The
fees applicable to Service Shares are different from those applicable to
Class A Shares which impact performance ratings and rankings for a class of
shares.
5a Class A Shares of Municipal Income Fund commenced operations on July 20,
1993.
5b Class B Shares of Municipal Income Fund commenced operations on May 1,
1996.
5c Class C, Institutional and Service Shares of the Municipal Income Fund
commenced operations on August 15, 1997. Performance data for Service
Shares prior to August 15, 1997 is that of Class A Shares (excluding the
impact of front-end sales charges applicable to Class A Shares since
Service Shares are not subject to any sales charges). Performance of Class
A Shares reflects the expenses applicable to the Fund's Class A Shares. The
fees applicable to Service Shares are different from those applicable to
Class A Shares which impact performance ratings and rankings for a class of
shares.
6a Institutional Shares of Core Fixed Income Fund commenced operations on
January 5, 1994.
6b Service Shares of Core Fixed Income Fund commenced operations on March 13,
1996.
6c Class A and Class B Shares of Core Fixed Income Fund commenced operations
on May 1, 1997.
6d Class C Shares of Core Fixed Income Fund commenced operations on August 15,
1997.
7a On November 27, 1992, the maximum sales charge was changed from 3% to 4.5%
of the offering price. All performance figures in this table incorporate
the sales charge currently in effect.
B-107
<PAGE>
7b Class A Shares of Global Income Fund commenced operations on August 2,
1991.
7c Class B Shares of Global Income Fund commenced operations on May 1, 1996.
7d Institutional Shares of Global Income Fund commenced operations on August
1, 1995.
7e Service Shares of Global Income Fund commenced operations on March 12,
1997. Performance data for Service Shares prior to March 12, 1997 is that
of Class A Shares (excluding the impact of front-end sales charges
applicable to Class A Shares since Service Shares are not subject to any
sales charges.) Performance of Class A Shares reflects the expenses
applicable to the Fund's Class A Shares. The fees applicable to Service
Shares are different from those applicable to Class A Shares which impact
performance ratings and rankings for a class of shares.
7f Class C Shares of Global Income Fund commenced operations August 15, 1997.
8a As of October 31, 1999, High Yield Municipal Fund had not commenced
operations.
9a Class A, Class B, Institutional and Service Shares of High Yield Fund
commenced operations on August 1, 1997.
9b Class C Shares of High Yield Fund commenced operations on August 15, 1997.
The above table should not be considered a representation of future performance.
Occasionally, statistics may be used to specify a Fund's volatility or
risk. Measures of volatility or risk are generally used to compare a Fund's net
asset value or performance relative to a market index. One measure of volatility
is beta. Beta is the volatility of a fund relative to the total market. A beta
of more than 1.00 indicates volatility greater than the market, and a beta of
less than 1.00 indicates volatility less than the market. Another measure of
volatility or risk is standard deviation. Standard deviation is used to measure
variability of net asset value or total return around an average, over a
specified period of time. The premise is that greater volatility connotes
greater risk undertaken in achieving performance.
Each Fund may from time to time advertise comparative performance as
measured by various independent sources, including, but not limited to, Lipper
------
Analytical Services, Inc., Donaghue's Money Fund Report, Barron's, The Wall
- ------------------------- ---------------------------- -------- --------
Street Journal, Weisenberger Investment Companies Service, Business Week,
- -------------- ----------------------------------------- -------------
Changing Times, Financial World, Forbes, Fortune, Morningstar Mutual Funds The
- -------------- --------------- ------ ------- ------------------------ ---
New York Times, Personal Investor, Sylvia Porter's Personal Finance and Money.
- -------------- ----------------- -------------------------------- -----
In addition, Adjustable Rate, Government Income and Short Duration
Government Funds may from time to time advertise their performance relative to
certain indices and benchmark investments, including: (a) the Shearson Lehman
Government/Corporate (Total) Index; (b) Shearson Lehman Government Index; (c)
Merrill Lynch 1-3 Year Treasury Index; (d) Merrill Lynch 2-Year Treasury Curve
Index; (e) the Salomon Brothers Treasury Yield Curve Rate of Return Index; (f)
the Payden & Rygel 2-Year Treasury Note Index; (g) 1 through 3 year U.S.
Treasury Notes; (h) constant maturity U.S. Treasury yield indices; (i) the
Consumer Price Index; (j) the London Interbank Offered Rate; (k) other taxable
investments such as certificates of deposit, money market deposit accounts,
checking accounts, savings accounts, money market mutual funds, repurchase
agreements, commercial paper; and (l) historical data concerning the performance
of adjustable and fixed-rate mortgage loans.
B-108
<PAGE>
Short Duration Tax-Free and Municipal Income Funds may from time to time
advertise their performance relative to certain indices, any components of such
indices and benchmark investments, including but not limited to: (a) the Lipper
Analytical Services, Inc. Mutual Fund Performance Analysis, Fixed Income
Analysis and Mutual Fund Indices (which measure total return and average current
yield for the mutual fund industry and rank mutual fund performance); (b) the
Lehman Brothers Municipal Bond Indices; (c) the Merrill Lynch Municipal Bond
Institutional Total Rate of Return Indices; (d) Bond Buyer Indices; (e)
IBC/Donoghue's Money Fund Averages/Institutional Only Tax Free; and constant
maturity U.S. Treasury yield indices.
Core Fixed Income, Global Income and High Yield Funds may each from time to
time advertise its performance relative to certain indices and benchmark
investments, including: (a) the Lipper Analytical Services, Inc. Mutual Fund
Performance Analysis, Fixed Income Analysis and Mutual Fund Indices (which
measure total return and average current yield for the mutual fund industry and
rank mutual fund performance); (b) the CDA Mutual Fund Report published by CDA
Investment Technologies, Inc. (which analyzes price, risk and various measures
of return for the mutual fund industry); (c) the Consumer Price Index published
by the U.S. Bureau of Labor Statistics (which measures changes in the price of
goods and services); (d) Stocks, Bonds, Bills and Inflation published by
Ibbotson Associates (which provides historical performance figures for stocks,
government securities and inflation); (e) the Salomon Brothers' World Bond Index
(which measures the total return in U.S. dollar terms of government bonds,
Eurobonds and foreign bonds of ten countries, with all such bonds having a
minimum maturity of five years); (f) the Lehman Brothers Aggregate Bond Index or
its component indices; (g) the Standard & Poor's Bond Indices (which measure
yield and price of corporate, municipal and U.S. government bonds); (h) the J.P.
Morgan Global Government Bond Index; (i) other taxable investments including
certificates of deposit (CDs), money market deposit accounts (MMDAs), checking
accounts, savings accounts, money market mutual funds and repurchase agreements;
(j) historical investment data supplied by the research departments of Goldman
Sachs, Lehman Brothers Inc., First Boston Corporation, Morgan Stanley & Co.
Incorporated, Salomon Brothers, Inc., Merrill Lynch, Pierce, Fenner & Smith
Incorporated and Donaldson Lufkin and Jenrette Securities Corporation; and (k)
Donoghue's Money Fund Report (which provides industry averages for 7-day
annualized and compounded yields of taxable, tax-free and U.S. government money
funds).
The composition of the investments in the above-referenced indices and the
characteristics of a Fund's benchmark investments are not identical to, and in
some cases may be very different from, those of a Fund's portfolio. These
indices and averages are generally unmanaged and the items included in the
calculations of such indices and averages may not be identical to the formulas
used by the a Fund to calculate its performance figures.
From time to time advertisements or communications to shareholders may
summarize the substance of information contained in shareholder reports
(including the investment composition of a Fund), as well as the views of
Goldman Sachs as to current market, economic, trade and interest rate trends,
legislative, regulatory and monetary developments, investment strategies and
regulated matters believed to be of relevance to a Fund.
Information used in advertisement and materials furnished to present and
prospective investors may include statements or illustrations relating to the
appropriateness of certain types of securities and/or mutual funds to meet
specific financial goals. Such information may address:
B-109
<PAGE>
.. cost associated with aging parents;
.. funding a college education (including its actual and estimated cost);
.. health care expenses (including actual and projected expenses);
.. long-term disabilities (including the availability of, and coverage
provided by, disability insurance):
.. retirement (including the availability of social security benefits, the tax
treatment of such benefits and statistics and other information relating to
maintaining a particular standard of living and outliving existing assets);
.. asset allocation strategies and the benefits of diversifying among asset
classes;
.. the benefits of international and emerging market investments;
.. the effects of inflation on investing and saving;
.. the benefits of establishing and maintaining a regular pattern of investing
and the benefits of dollar-cost averaging; and
.. measures of portfolio risk, including but not limited to, alpha, beta and
standard deviation.
The Trust may from time to time use comparisons, graphs or charts in
advertisements to depict the following types of information:
.. The performance of various types of securities (taxable money market funds,
U.S. Treasury securities, adjustable rate mortgage securities, government
securities, municipal bonds) over time. However, the characteristics of
these securities are not identical to, and may be very different from,
those of a Fund's portfolio;
.. Volatility of total return of various market indices (i.e., Lehman
Government Bond Index, Standard and Poor's 500, IBC/Donoghue's Money Fund
Average/All Taxable Index) over varying periods of time;
.. Credit ratings of domestic government bonds in various countries;
.. Price volatility comparisons of types of securities over different periods
of time; or
.. Price and yield comparisons of a particular security over different periods
of time.
In addition, the Trust may from time to time include rankings of Goldman
Sachs' research department by publications such as the Institutional Investor
and the Wall Street Journal in advertisements.
In addition, from time to time, advertisements or information may include a
discussion of asset allocation models developed by GSAM and/or its affiliates,
certain attributes or benefits to be
B-110
<PAGE>
derived from asset allocation strategies and the Goldman Sachs mutual funds that
may be offered as investment options for the strategic asset allocations. Such
advertisements and information may also include GSAM's current economic outlook
and domestic and international market views to suggest periodic tactical
modifications to current asset allocation strategies. Such advertisements and
information may include other material which highlight or summarize the services
provided in support of an asset allocation program.
In addition, advertisements or shareholder communications may include a
discussion of certain attributes or benefits to be derived by an investment in a
Fund. Such advertisements or information may include symbols, headlines or other
material which highlight or summarize the information discussed in more detail
therein.
Performance data is based on historical results and is not intended to
indicate future performance. Total return, 30-day yield, tax equivalent yield
and distribution rate will vary based on changes in market conditions, portfolio
expenses, portfolio investments and other factors. The value of a Fund's shares
will fluctuate and an investor's shares may be worth more or less than their
original cost upon redemption. The Trust may also, at its discretion, from time
to time make a list of a Fund's holdings available to investors upon request.
Total return will be calculated separately for each class of shares in
existence. Because each class of shares is subject to different expenses, total
return with respect to each class of shares of a Fund will differ.
OTHER INFORMATION
As stated in the Prospectuses, the Trust may authorize Service
Organizations and other institutions that provide recordkeeping, reporting and
processing services to their customers to accept on the Trust's behalf purchase,
redemption and exchange orders placed by or on behalf of their customers and, if
approved by the Trust, to designate other intermediaries to accept such orders.
These institutions may receive payments from the Trust or Goldman Sachs for
their services. Certain Service Organizations or institutions may enter into
sub-transfer agency agreements with the Trust or Goldman Sachs with respect to
their services.
The Investment Adviser, Distributor and/or their affiliates may pay, out of
their own assets, compensation to Authorized Dealers, Service Organizations and
other financial intermediaries ("Intermediaries") in connection with the sale
and distribution of shares of the Funds and/or servicing of these shares. These
payments ("Additional Payments") would be in addition to the payments by the
Funds described in the Funds' Prospectuses and this Additional Statement for
distribution and shareholder servicing and processing, and would also be in
addition to the sales commissions payable to Intermediaries as set forth in the
Prospectus. These Additional Payments may take the form of "due diligence"
payments for an Intermediary's examination of the Funds and payments for
providing extra employee training and information relating to the Funds;
"listing" fees for the placement of the Funds on a dealer's list of mutual funds
available for purchase by its customers; "finders" or "referral" fees for
directing investors to the Funds; "marketing support" fees for providing
assistance in promoting the sale of the Funds' shares; and payments for the sale
of shares and/or the maintenance of share balances. In addition, the Investment
Adviser, Distributor and/or their affiliates may make Additional Payments for
subaccounting, administrative and/or shareholder processing services that are in
addition to any shareholder servicing and processing fees paid by the Funds. The
Additional Payments made by the Investment Adviser, Distributor and their
affiliates may be a fixed
B-111
<PAGE>
dollar amount, may be based on the number of customer accounts maintained by an
Intermediary, or may be based on a percentage of the value of shares sold to, or
held by, customers of the Intermediary involved, and may be different for
different Intermediaries. Furthermore, the Investment Adviser, Distributor
and/or their affiliates may contribute to various non-cash and cash incentive
arrangements to promote the sale of shares, as well as sponsor various
educational programs, sales contests and/or promotions. The Investment Adviser,
Distributor and their affiliates may also pay for the travel expenses, meals,
lodging and entertainment of Intermediaries and their salespersons and guests in
connection with educational, sales and promotional programs, subject to
applicable NASD regulations. The Distributor currently expects that such
additional bonuses or incentives will not exceed 0.50% of the amount of any
sales.
A Fund will redeem shares solely in cash up to the lesser of $250,000 or 1%
of the net asset value of the Fund during any 90-day period for any one
shareholder. Each Fund, however, reserves the right to pay redemptions exceeding
$250,000 or 1% of the net asset value of each respective Fund at the time of
redemption by a distribution in kind of securities (instead of cash) from such
Fund. The securities distributed in kind would be readily marketable and would
be valued for this purpose using the same method employed in calculating each
Fund's net asset value per share. See "Net Asset Value." If a shareholder
receives redemption proceeds in kind, the shareholder should expect to incur
transaction costs upon the disposition of the securities received in the
redemption.
The right of a shareholder to redeem shares and the date of payment by each
Fund may be suspended for more than seven days for any period during which the
New York Stock Exchange is closed, other than the customary weekends or
holidays, or when trading on such Exchange is restricted as determined by the
SEC; or during any emergency, as determined by the SEC, as a result of which it
is not reasonably practicable for such Fund to dispose of securities owned by it
or fairly to determine the value of its net assets; or for such other period as
the SEC may by order permit for the protection of shareholders of such Fund.
(The Trust may also suspend or postpone the recommendation of the transfer of
shares upon the occurrence of any of the foregoing conditions).
The Prospectuses and this Additional Statement do not contain all the
information included in the Registration Statement filed with the SEC under the
1933 Act with respect to the securities offered by the Prospectuses. Certain
portions of the Registration Statement have been omitted from the Prospectuses
and this Additional Statement pursuant to the rules and regulations of the SEC.
The Registration Statement including the exhibits filed therewith may be
examined at the office of the SEC in Washington, D.C.
Statements contained in the Prospectuses or in this Additional Statement as
to the contents of any contract or other document referred to are not
necessarily complete, and, in each instance, reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement of which the Prospectuses and this Additional Statement form a part,
each such statement being qualified in all respects by such reference.
FINANCIAL STATEMENTS
The audited financial statements and related report of Arthur Andersen LLP,
former independent public accountants, for each Fund contained in each Fund's
1999 Annual Report are hereby incorporated by reference and attached hereto. A
copy of the annual reports may be obtained without charge by writing Goldman,
Sachs & Co., 4900 Sears Tower, Chicago, Illinois 60606 or by calling
B-112
<PAGE>
Goldman, Sachs & Co., at the telephone number on the back cover of each Fund's
Prospectus. No other portions of the Funds' Annual Reports are incorporated
herein by reference.
Ernst & Young LLP have been selected as auditors of the Funds of the Trust for
the fiscal year ending October 31, 2000.
OTHER INFORMATION REGARDING PURCHASES,
REDEMPTIONS, EXCHANGES AND DIVIDENDS
(Class A Shares, Class B Shares and Class C Shares Only)
The following information supplements the information in the Prospectus
under the captions "Shareholder Guide" and "Dividends." Please see the
Prospectus for more complete information.
Other Purchase Information
- --------------------------
The sales load waivers on the Funds' shares are due to the nature of the
investors involved and/or the reduced sales effort that is needed to obtain such
investments.
If shares of a Fund are held in a "street name" account with an Authorized
Dealer, all recordkeeping, transaction processing and payments of distributions
relating to the beneficial owner's account will be performed by the Authorized
Dealer, and not by the Fund and its Transfer Agent. Since the Funds will have no
record of the beneficial owner's transactions, a beneficial owner should contact
the Authorized Dealer to purchase, redeem or exchange shares, to make changes in
or give instructions concerning the account or to obtain information about the
account. The transfer of shares in a "street name" account to an account with
another dealer or to an account directly with the Fund involves special
procedures and will require the beneficial owner to obtain historical purchase
information about the shares in the account from the Authorized Dealer.
Right of Accumulation - (Class A)
- ---------------------------------
A Class A shareholder qualifies for cumulative quantity discounts if
the current purchase price of the new investment plus the shareholder's current
holdings of existing Class A Shares (acquired by purchase or exchange) of the
Funds and Class A Shares of any other Goldman Sachs Fund total the requisite
amount for receiving a discount. For example, if a shareholder owns shares with
a current market value of $65,000 and purchases additional Class A Shares of the
Government Income Fund with a purchase price of $45,000, the sales charge for
the $45,000 purchase would be 3.0% (the rate applicable to a single purchase of
more than $100,000). Class A Shares purchased without the imposition of a sales
charge and shares of another class of the Funds may not be aggregated with Class
A Shares purchased subject to a sales charge. Class A Shares of the Funds and
any other Goldman Sachs Fund purchased (i) by an individual, his spouse and his
children; and (ii) by a trustee, guardian or other fiduciary of a single trust
estate or a single fiduciary account, will be combined for the purpose of
determining whether a purchase will qualify for such right of accumulation and,
if qualifying, the applicable sales charge level. For purposes of applying the
right of accumulation, shares of the Funds and any other Goldman Sachs Fund
purchased by an existing client of the Private Client Services Division of
Goldman Sachs will be combined with Class A Shares held by any other Private
Client Services account. In addition, Class A Shares of the Funds and Class A
Shares of any other Goldman Sachs Fund purchased by partners, directors,
officers or employees of the same business organization or by groups of
individuals represented by and investing on the recommendation of the same
accounting firm, certain affinity groups or other similar
B-113
<PAGE>
organizations (collectively, "eligible persons") may be combined for the purpose
of determining whether a purchase will qualify for the right of accumulation
and, if qualifying, the applicable sales charge level. This right of
accumulation is subject to the following conditions: (i) the business
organization's, group's or firm's agreement to cooperate in the offering of the
Funds' shares to eligible persons; and (ii) notification to the Funds at the
time of purchase that the investor is eligible for this right of accumulation.
In addition, in connection with SIMPLE IRA accounts, cumulative quantity
discounts are available on a per plan basis if (1) your employee has been
assigned a cumulative discount number by Goldman Sachs; and (2) your account,
alone or in combination with the accounts of other plan participants also
invested in Class A shares of the Goldman Sachs Funds totals the requisite
aggregate amount as described in the Prospectuses.
Statement of Intention - (Class A)
- ----------------------------------
If a shareholder anticipates purchasing at least $100,000 ($500,000 in the
case of Adjustable Rate Government Fund and $250,000 in the case of Short
Duration Government and Short Duration Tax-Free Funds), not counting
reinvestments of dividends and distributions, of Class A Shares of a Fund alone
or in combination with Class A Shares of any other Goldman Sachs Fund within a
13-month period, the shareholder may purchase shares of the Fund at a reduced
sales charge by submitting a Statement of Intention (the "Statement"). Shares
purchased pursuant to a Statement will be eligible for the same sales charge
discount that would have been available if all of the purchases had been made at
the same time. The shareholder or his Authorized Dealer must inform Goldman
Sachs that the Statement is in effect each time shares are purchased. There is
no obligation to purchase the full amount of shares indicated in the Statement.
A shareholder may include the value of all Class A Shares on which a sales
charge has previously been paid as an "accumulation credit" toward the
completion of the Statement, but a price readjustment will be made only on Class
A Shares purchased within 90 days before submitting the Statement. The Statement
authorizes the Transfer Agent to hold in escrow a sufficient number of shares
which can be redeemed to make up any difference in the sales charge on the
amount actually invested. For purposes of satisfying the amount specified on the
Statement, the gross amount of each investment, exclusive of any appreciation on
shares previously purchased, will be taken into account.
The provisions applicable to the Statement, and the terms of the related
escrow agreement, are set forth in Appendix C to this Additional Statement.
Cross-Reinvestment of Dividends and Distributions
- -------------------------------------------------
Shareholders may receive dividends and distributions in additional shares
of the same class of the Fund in which they have invested or they may elect to
receive them in cash or shares of the same class of other mutual funds sponsored
by Goldman Sachs (the "Goldman Sachs Funds") or ILA Service Units of the Prime
Obligations Portfolio or the Tax-Exempt Diversified Portfolio, if they hold
Class A Shares of a Fund, or ILA Class B or Class C Units of the Prime
Obligations Portfolio, if they hold Class B or Class C Shares of a Fund (the
"ILA Portfolios"). A Portfolio shareholder should obtain and read the prospectus
relating to any other Goldman Sachs Fund or ILA Fund and its shares or units and
consider its investment objective, policies and applicable fees before electing
cross-reinvestment into that Fund. The election to cross-reinvest dividends and
capital gain distributions will not affect the tax treatment of such dividends
and distributions, which will be treated as received by the shareholder and then
used to purchase shares of the acquired fund. Such reinvestment of dividends and
distributions in shares of other Goldman Sachs Funds or ILA Portfolios is
available only in states where such reinvestment may legally be made.
B-114
<PAGE>
Automatic Exchange Program
- --------------------------
A shareholder may elect to exchange automatically a specified dollar amount
of shares of a Fund into an identical account of another Fund or an account
registered in a different name or with a different address, social security or
other taxpayer identification number, provided that the account in the acquired
fund has been established, appropriate signatures have been obtained and the
minimum initial investment requirement has been satisfied. A Fund shareholder
should obtain and read the prospectus relating to any other Goldman Sachs Fund
and its shares and consider its investment objective, policies and applicable
fees and expenses before electing an automatic exchange into that Goldman Sachs
Fund.
Systematic Withdrawal Plan
- --------------------------
A systematic withdrawal plan (the "Systematic Withdrawal Plan") is
available to shareholders of a Fund whose shares are worth at least $5,000. The
Systematic Withdrawal Plan provides for monthly payments to the participating
shareholder of any amount not less than $50.
Dividends and capital gain distributions on shares held under the
Systematic Withdrawal Plan are reinvested in additional full and fractional
shares of the applicable Fund at net asset value. The Transfer Agent acts as
agent for the shareholder in redeeming sufficient full and fractional shares to
provide the amount of the systematic withdrawal payment. The Systematic
Withdrawal Plan may be terminated at any time. Goldman Sachs reserves the right
to initiate a fee of up to $5 per withdrawal, upon 30 days written notice to the
shareholder. Withdrawal payments should not be considered to be dividends, yield
or income. If periodic withdrawals continuously exceed new purchases and
reinvested dividends and capital gains distributions, the shareholder's original
investment will be correspondingly reduced and ultimately exhausted. The
maintenance of a withdrawal plan concurrently with purchases of additional Class
A, Class B or Class C Shares would be disadvantageous because of the sales
charge imposed on purchases of Class A Shares or the imposition of a contingent
deferred sales charge ("CDSC") on redemptions of Class A, Class B and Class C
Shares. The CDSC applicable to Class B and Class C Shares redeemed under a
systematic withdrawal plan may be waived. See "Shareholder Guide" in the
Prospectus. In addition, each withdrawal constitutes a redemption of shares, and
any gain or loss realized must be reported for federal and state income tax
purposes. A shareholder should consult his or her own tax adviser with regard to
the tax consequences of participating in the Systematic Withdrawal Plan. For
further information or to request a Systematic Withdrawal Plan, please write or
call the Transfer Agent.
Offering Price of Class A Shares
- --------------------------------
Class A Shares of Government Income, Municipal Income, Core Fixed Income,
Global Income High Yield Municipal and High Yield Funds are sold at a maximum
sales charge of 4.5%, Adjustable Rate Government Fund at 1.5% and Short Duration
Government and Short Duration Tax-Free Funds at 2%. Using the offering price as
of October 31, 1999 and assuming a $10.00 initial offering price per share of
the High Yield Municipal Fund, the maximum offering price of the Class A shares
of each Fund's Shares then in existence would be as follows:
B-115
<PAGE>
<TABLE>
<CAPTION>
Net Asset Maximum Offering Price
Fund Value Sales Charge to Public
---- ----- ------------ ---------
<S> <C> <C> <C>
Adjustable Rate Government $ 9.63 1.5% $9.78
Short Duration Government 9.57 2.0% 9.77
Short Duration Tax-Free 9.93 2.0% 10.13
Government Income 13.70 4.5% 14.35
Municipal Income 14.07 4.5% 14.73
Core Fixed Income 9.50 4.5% 9.95
Global Income 14.49 4.5% 15.17
High Yield Municipal 10.00 4.5% 10.47
High Yield 9.07 4.5% 9.50
</TABLE>
DISTRIBUTION AND SERVICE PLANS
(Class A Shares, Class B Shares and Class C Shares Only)
Distribution and Service Plans. As described in the Prospectus, the Trust
------------------------------
has adopted, on behalf of Class A, Class B and Class C Shares of each Fund,
distribution and service plans (each a "Plan") pursuant to Rule 12b-1 under the
Act.
The Plans for each Fund (other than the High Yield Municipal Fund) were
most recently approved on April 27, 1999 by a majority vote of the Trustees of
the Trust, including a majority of the non-interested Trustees of the Trust who
have no direct or indirect financial interest in the Plans, cast in person at a
meeting called for the purpose of approving the Plans. The Plans were initially
so approved for the High Yield Municipal Fund on February 3, 2000.
The compensation for distribution services payable under a Plan may not
exceed 0.25%, 0.75% and 0.75% per annum of a Fund's average daily net assets
attributable to Class A, Class B and Class C Shares, respectively, of such Fund.
Under the Plans for Class A (Global Income Fund only), Class B and Class C
Shares, Goldman Sachs is also entitled to received a separate fee for personal
and account maintenance services equal to an annual basis of 0.25% of each
Fund's average daily net assets attributable to Class A, Class B or Class C
Shares. With respect to Class A Shares, the Distributor at its discretion may
use compensation for distribution services paid under the Plan for personal and
account maintenance services and expenses so long as such total compensation
under the Plan does not exceed the maximum cap on "service fees" imposed by the
NASD.
Currently, Goldman Sachs has voluntarily agreed to limit distribution and
service fees pursuant to the Plan to .85% of the average daily net assets
attributable to Class B Shares of the Short Duration Government and Short
Duration Tax-Free Funds. Goldman Sachs may modify or discontinue such limitation
in the future at its discretion.
Each Plan is a compensation plan which provides for the payment of a
specified fee without regard to the expenses actually incurred by Goldman Sachs.
If such fee exceeds Goldman Sachs' expenses, Goldman Sachs may realize a profit
from these arrangements. The distribution fees received by Goldman Sachs under
the Plans and CDSC on Class A, Class B and Class C Shares may be sold by Goldman
Sachs as distributor to entities which provide financing for payments to
B-116
<PAGE>
Authorized Dealers in respect of sales of Class A, Class B and Class C Shares.
To the extent such fees are not paid to such dealers, Goldman Sachs may retain
such fee as compensation for its services and expenses of distributing the
Funds' Class A, Class B and Class C Shares.
Under each Plan, Goldman Sachs, as distributor of each Fund's Class A,
Class B and Class C Shares, will provide to the Trustees of the Trust for their
review, and the Trustees of the Trust will review at least quarterly a written
report of the services provided and amounts expended by Goldman Sachs under the
Plans and the purposes for which such services were performed and expenditures
were made.
The Plans will remain in effect until May 1, 2000 and from year to year
thereafter, provided that such continuance is approved annually by a majority
vote of the Trustees of the Trust, including a majority of the non-interested
Trustees of the Trust who have no direct or indirect financial interest in the
Plans. The Plans may not be amended to increase materially the amount of
distribution compensation described therein without approval of a majority of
the outstanding Class A, Class B or Class C Shares of the affected Fund and
share class. All material amendments of a Plan must also be approved by the
Trustees of the Trust in the manner described above. A Plan may be terminated at
any time as to any Fund without payment of any penalty by a vote of a majority
of the non-interested Trustees of the Trust or by vote of a majority of the
Class A, Class B or Class C Shares, respectively, of the applicable Fund and
share class. If a Plan was terminated by the Trustees of the Trust and no
successor plan was adopted, the Fund would cease to make payments to Goldman
Sachs under the Plan and Goldman Sachs would be unable to recover the amount of
any of its unreimbursed expenditures. So long as a Plan is in effect, the
selection and nomination of non-interested Trustees of the Trust may be
committed to the discretion of the non-interested Trustees of the Trust. The
Trustees of the Trust have determined that in their judgment there is a
reasonable likelihood that the Plans will benefit the Funds and their Class A,
Class B and Class C shareholders.
B-117
<PAGE>
For the fiscal years ended October 31, 1999, 1998, and 1997, each Fund paid
Goldman Sachs the following distribution and service fees under the Class A
Plans:
<TABLE>
<CAPTION>
Fund 1999 1998 1997
---- ---- ---- ----
<S> <C> <C> <C>
Adjustable Rate Government
With fee waivers $83,944 $114,701 $81,982
Without fee waivers 83,944 217,577 163,856
Short Duration Government(1)
with fee waivers 132,906 61,613 3,709
without fee waivers 132,906 111,382 9,704
Short Duration Tax-Free(1)
with fee waivers 55,585 28,662 2,364
without fee waivers 55,585 53,564 4,728
Government Income
with fee waivers 215,650 242,829 125,744
without fee waivers 215,650 462,183 251,449
Municipal Income
with fee waivers 233,311 198,110 143,714
without fee waivers 233,311 376,793 287,426
Core Fixed Income(1)
with fee waivers 142,505 82,043 4,437
without fee waivers 142,505 152,462 8,874
Global Income
with fee waivers 1,269,380 844,319 836,863
without fee waivers 1,269,380 902,713 909,723
High Yield Municipal(2)
with fee waivers N/A N/A N/A
without fee waivers N/A N/A N/A
High Yield(3)
with fee waivers 1,245,873 962,496 152,941
without fee waivers 1,245,873 1,844,618 305,886
</TABLE>
- ----------------------
1 Class A Shares of the Core Fixed Income, Short Duration Government and
Short Duration Tax-Free Funds commenced operations on May 1, 1997.
2 As of October 31, 1999, High Yield Municipal Fund had not commenced
operations.
3 High Yield Fund commenced operations on August 1, 1997.
B-118
<PAGE>
During the fiscal year ended October 31, 1999, Goldman Sachs incurred the
following distribution expenses under the Class A Plan on behalf of
Adjustable Rate Government, Short Duration Government, Short Duration
Tax-Free, Government Income, Municipal Income, Core Fixed Income, Global
Income, High Yield Municipal and High Yield Funds (Goldman Sachs used the
fees, if any, received under the Plan in the same proportion to the amounts
set forth below.)
<TABLE>
<CAPTION>
Printing and Preparation
Allocable Mailing of and
Overhead, Prospectuses to Distribution of
Compensation Telephone Other than Sales
Fiscal Year ended Compensation to to Sales and Travel Current Literature and
October 31, 1999 Dealers(1) Personnel Expenses Shareholders Advertising
- ---------------- ---------- --------- -------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Adjustable Rate
Government Fund $ 29,693 $191,592 $188,982 $11,276 $ 56,523
Short Duration 532,919 166,479 214,723 12,811 63,915
Government Fund
Short Duration 327,130 103,747 137,959 8,196 40,887
Tax-Free Fund
Government Income Fund 388,046 246,559 225,468 13,453 67,114
Municipal Income Fund 257,399 176,763 179,446 10,707 53,415
Core Fixed Income Fund 193,979 155,320 176,622 10,538 52,574
Global Income Fund 503,557 593,813 467,519 27,895 139,163
High Yield Municipal N/A N/A N/A N/A N/A
Fund(2)
High Yield Fund 1,463,696 1,689,890 810,793 48,376 241,344
</TABLE>
- -------------------------
1 Advance commissions paid to dealers of 1% on Class A Shares are considered
deferred assets which are amortized over a period of one year; amounts
presented above reflect amortization expense recorded during the period
presented.
2 As of October 31, 1999, the High Yield Municipal Fund had not commenced
operations.
B-119
<PAGE>
For the fiscal years ended October 31, 1999, October 31, 1998 and October
31, 1997, each Fund paid Goldman Sachs the following distribution and
service fees under the Class B Plans:
<TABLE>
<CAPTION>
Fund 1999 1998 1997
- ---- ---- ---- ----
<S> <C> <C> <C>
Short Duration Government(1)
with fee waivers $47,049 $ 20,328 $ 1,931
without fee waivers 55,049 23,912 2,272
Short Duration Tax-Free(1)
with fee waivers 13,715 2,502 211
without fee waivers 15,715 2,944 248
Government Income
with fee waivers 187,747 119,857 34,208
without fee waivers 187,747 119,857 34,208
Municipal Income
with fee waivers 83,700 37,316 8,882
without fee waivers 83,700 37,316 8,882
Core Fixed Income(1)
with fee waivers 122,578 31,187 1,362
without fee waivers 122,578 31,187 1,362
Global Income
with fee waivers 120,645 54,793 14,261
without fee waivers 120,645 54,793 14,261
High Yield Municipal(2)
with fee waivers N/A N/A N/A
without fee waivers N/A N/A N/A
High Yield(3)
with fee waivers 373,154 216,017 13,358
without fee waivers 373,154 216,017 13,358
</TABLE>
- ------------------------
(1) Class B Shares of Core Fixed Income, Short Duration Government and Short
Duration Tax-Free commenced operations on May 1, 1997.
(2) As of October 31, 1999, High Yield Municipal Fund had not commenced
operations.
(3) High Yield Fund commenced operations on August 1, 1997.
B-120
<PAGE>
During the fiscal year ended October 31, 1999, Goldman Sachs incurred
the following expenses in connection with distribution under the Class
B Plan on behalf of each Fund. (Goldman Sachs used the fees, if any,
received under the Plan in the same proportion to the amounts set forth
below.)
<TABLE>
<CAPTION>
Preparation
Printing and and
Allocable Mailing of Distribution
Overhead, Prospectuses of Sales
Compensation Telephone to Other than Literature
Fiscal Year ended Compensation to its Sales and Travel Current and
October 31, 1999 To Dealers(1) Personnel Expenses Shareholders Advertising
---------------- ------------- --------- -------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Short Duration Government Fund $ 68,360 $16,594 $22,286 $ 1,330 $ 6,634
Short Duration Tax-Free Fund 5,214 7,164 9,618 574 2,863
Government Income Fund 405,098 34,429 46,239 2,759 13,764
Municipal Income Fund 142,489 11,637 15,628 932 4,652
Core Fixed Income Fund 146,917 28,350 38,075 2,272 11,334
Global Income Fund 168,961 15,141 20,334 1,213 6,053
High Yield Municipal N/A N/A N/A N/A N/A
Bond Fund(2)
High Yield Fund 518,088 38,657 51,918 3,098 15,454
</TABLE>
- -----------------------
1 Advance commissions paid to dealers of 4% on Class B Shares are considered
deferred assets which are amortized over a period of six years; amounts
presented above reflect amortization expense recorded during the period
presented.
2 As of October 31, 1999, the High Yield Municipal Fund had not commenced
operations.
B-121
<PAGE>
For the fiscal years ended October 31, 1999, October 31, 1998 and October
31, 1997, each Fund paid Goldman Sachs the following distribution and
service fees under the Class C Plans:
<TABLE>
<CAPTION>
Fund 1998 1998 1997(2)
- ---- ---- ---- ----
<S> <C> <C> <C>
Short Duration Government
with fee waivers $67,893 $18,487 $119
without fee waivers 67,893 18,487 119
Short Duration Tax-Free
with fee waivers 28,417 12,338 16
without fee waivers 28,417 12,338 16
Government Income
with fee waivers 104,190 37,727 1,100
without fee waivers 104,190 37,727 1,100
Municipal Income 53
with fee waivers 42,230 12,574 53
without fee waivers 42,230 12,574
Core Fixed Income
with fee waivers 71,888 30,651 194
without fee waivers 71,888 30,651 194
Global Income
with fee waivers 70,592 22,123 380
without fee waivers 70,592 22,123 380
High Yield Municipal(1)
with fee waivers N/A N/A N/A
without fee waivers N/A N/A N/A
High Yield
with fee waivers 105,762 63,298 1,728
without fee waivers 105,762 63,298 1,728
</TABLE>
- ------------------------
(1) As of October 31, 1999, High Yield Municipal Fund had not commenced
operations.
(2) Class C Shares of each Fund (except High Yield Municipal Fund) commenced
operations on August 15, 1997.
B-122
<PAGE>
During the fiscal year ended October 31, 1999, Goldman Sachs incurred the
following expenses in connection with distribution under the Class C Plan on
behalf of each Fund. (Goldman Sachs used the fees, if any, received under the
Plan in the same proportion to the amounts set forth below.)
<TABLE>
<CAPTION>
Preparation
Printing and and
Allocable Mailing of Distribution
Overhead, Prospectuses of Sales
Compensation Telephone to Other than Literature
Fiscal Year ended Compensation to its Sales and Travel Current and
October 31, 1999 To Dealers(1) Personnel Expenses Shareholders Advertising
---------------- ------------- --------- -------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Short Duration
Government Fund $141,998 $25,284 $27,711 $1,653 $8,249
Short Duration Tax-
Free Fund 34,749 16,247 17,660 1,054 5,257
Government
Income Fund 123,560 19,182 25,762 1,537 7,668
Municipal Income
Fund 46,427 5,823 7,821 467 2,328
Core Fixed Income
Fund 76,312 16,513 22,177 1,323 6,601
Global Income
Fund 72,725 8,917 11,976 715 3,565
High Yield
Municipal Fund/2/ N/A N/A N/A N/A N/A
High Yield Fund 124,832 10,837 14,555 868 4,332
</TABLE>
- -----------------------
1 Advance commissions paid to dealers of 1% on Class C Shares are considered
deferred assets which are amortized over a period of one year; amounts
presented above reflect amortization expense recorded during the period
presented.
2 As of October 31, 1999, the High Yield Municipal Fund had not commenced
operations.
B-123
<PAGE>
SERVICE PLAN
(Service Shares Only)
Each Fund has adopted a service plan (the "Plan") with respect to its
Service Shares which authorizes it to compensate Service Organizations for
providing certain administration services and personal and account maintenance
services to their customers who are or may become beneficial owners of such
Shares. Pursuant to the Plan, a Fund will enter into agreements with Service
Organizations which purchase Service Shares of the Fund on behalf of their
customers ("Service Agreements"). Under such Service Agreements, the Service
Organizations may perform some or all of the following services: (a) act,
directly or through an agent, as the sole shareholder of record and nominee for
all customers; (b) maintain account records for each customer who beneficially
owns Service Shares of a Fund; (c) answer questions and handle correspondence
from customers regarding their accounts; (d) process customer orders to
purchase, redeem and exchange Service Shares of a Fund, and handle the
transmission of funds representing the customers' purchase price or redemption
proceeds; (e) issue confirmations for transactions in shares by customers; (f)
provide facilities to answer questions from prospective and existing investors
about Service Shares of a Fund; (g) receive and answer investor correspondence,
including requests for prospectuses and statements of additional information;
(h) display and make prospectuses available on the Service Organization's
premises; (i) assist customers in completing application forms, selecting
dividend and other account options and opening custody accounts with the Service
Organization; and (j) act as liaison between customers and a Fund, including
obtaining information from a Fund, working with a Fund to correct errors and
resolve problems and providing statistical and other information to a Fund. As
compensation for such services, a Fund will pay each Service Organization a
service fee in an amount up to 0.50% (on an annualized basis) of the average
daily net assets of the Service Shares of such Fund attributable to or held in
the name of such Service Organization; provided, however, that the fee paid for
personal and account maintenance services shall not exceed 0.25% of such average
daily net assets. For the fiscal years ended October 31, 1999, October 31, 1998,
and October 31, 1997 service fees were paid by the Funds as follows:
<TABLE>
<CAPTION>
Fund 1999 1998 1997
---- ---- ---- ----
<S> <C> <C> <C>
Adjustable Rate Government $3,765 $2,702 $ 292
Short Duration Government 31,877 23,540 12,087
Short Duration Tax-Free 6,221 2,142 6,435
Government Income 45 N/A 2
Municipal Income 7 N/A 2
Core Fixed Income 34,419 39,455 6,207
Global Income 4,708 885 523
High Yield Municipal(1) N/A N/A N/A
High Yield(2) 2,011 624 8
</TABLE>
- -------------------------
(1) As of October 31, 1999, High Yield Municipal Fund had not commenced
operations.
(2) High Yield Fund commenced operations on August 1, 1997.
Each Fund has adopted its Plan pursuant to Rule 12b-1 under the Act in
order to avoid any possibility that payments to the Service Organizations
pursuant to the Service Agreements might violate the Act. Rule 12b-1, which was
adopted by the SEC under the Act, regulates the
B-124
<PAGE>
circumstances under which an investment company or series thereof may bear
expenses associated with the distribution of its shares. In particular, such an
investment company or series thereof cannot engage directly or indirectly in
financing any activity which is primarily intended to result in the sale of
shares issued by the company unless it has adopted a plan pursuant to, and
complies with the other requirements of, such Rule. The Trust believes that fees
paid for the services provided in the Plan and described above are not expenses
incurred primarily for effecting the distribution of Service Shares. However,
should such payments be deemed by a court or the SEC to be distribution
expenses, such payments would be duly authorized by the Plan.
Conflict of interest restrictions (including the Employee Retirement Income
Security Act of 1974, as amended) may apply to a Service Organization's receipt
of compensation paid by a Fund in connection with the investment of fiduciary
assets in Service Shares of such Fund. Service Organizations, including banks
regulated by the Comptroller of the Currency, the Federal Reserve Board or the
Federal Deposit Insurance Corporation, and investment advisers and other money
managers subject to the jurisdiction of the SEC, the Department of Labor or
state securities regulators, are urged to consult their legal advisers before
investing fiduciary assets in Service Shares of the Funds. In addition, under
some state securities laws, banks and other financial institutions purchasing
Service Shares on behalf of their customers may be required to register as
dealers.
The Trustees, including a majority of the Trustees who are not interested
persons of the Trust and who have no direct or indirect financial interest in
the operation of the Plans or the related Service Agreements, most recently
voted to approve each Fund's Plan and Service Agreements (other than the High
Yield Municipal Fund) at a meeting called for the purpose of voting on such Plan
and Service Agreements on April 27, 1999. The Plan and Service Agreements were
initially so approved for the High Yield Municipal Fund on February 3, 2000. The
Plan and Service Agreements will remain in effect until May 1, 2000 will
continue in effect thereafter only if such continuance is specifically approved
annually by a vote of the Board of Trustees in the manner described above. The
Plan may not be amended to increase materially the amount to be spent for the
services described therein without approval of the shareholders of the affected
Fund, and all material amendments of each Plan must also be approved by the
Board of Trustees in the manner described above. The Plan may be terminated at
any time by a majority of the Board of Trustees as described above or by vote of
a majority of the outstanding Service Shares of the affected Fund. The Service
Agreements may be terminated at any time, without payment of any penalty, by
vote of a majority of the Board of Trustees as described above or by a vote of a
majority of the outstanding Service Shares of the affected Fund on not more than
60 days' written notice to any other party to the Service Agreements.
The Service Agreements will terminate automatically if assigned. So long as
the Plan is in effect, the selection and nomination of those Trustees who are
not interested persons will be committed to the discretion of the Trust's
Nominating Committee, which consists of all of the non-interested members of the
Board of Trustees. The Board of Trustees has determined that, in its judgment,
there is a reasonable likelihood that a Fund's Plan will benefit such Fund and
its holders of Service Shares.
B-125
<PAGE>
APPENDIX A
Commercial Paper Ratings
- ------------------------
A Standard & Poor's commercial paper rating is a current
opinion of the creditworthiness of an obligor with respect to financial
obligations having an original maturity of no more than 365 days. The following
summarizes the rating categories used by Standard & Poor's for commercial paper:
"A-1" - Obligations are rated in the highest category
indicating that the obligor's capacity to meet its financial commitment on the
obligation is strong. Within this category, certain obligations are designated
with a plus sign (+). This indicates that the obligor's capacity to meet its
financial commitment on these obligations is extremely strong.
"A-2" - Obligations are somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher rating categories. However, the obligor's capacity to meet
its financial commitment on the obligation is satisfactory.
"A-3" - Obligations exhibit adequate protection parameters.
However, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to meet its financial commitment
on the obligation.
"B" - Obligations are regarded as having significant
speculative characteristics. The obligor currently has the capacity to meet its
financial commitment on the obligation; however, it faces major ongoing
uncertainties which could lead to the obligor's inadequate capacity to meet its
financial commitment on the obligation.
"C" - Obligations are currently vulnerable to nonpayment and
are dependent upon favorable business, financial, and economic conditions for
the obligor to meet its financial commitment on the obligation.
"D" - Obligations are in payment default. The "D" rating
category is used when payments on an obligation are not made on the date due
even if the applicable grace period has not expired, unless Standard and Poor's
believes that such payments will be made during such grace period. The "D"
rating will be used upon the filing of a bankruptcy petition or the taking of a
similar action if payments on an obligation are jeopardized.
Moody's commercial paper ratings are opinions of the ability
of issuers to repay punctually senior debt obligations not having an original
maturity in excess of one year, unless explicitly noted. The following
summarizes the rating categories used by Moody's for commercial paper:
"Prime-1" - Issuers (or supporting institutions) have a
superior ability for repayment of senior short-term debt obligations. Prime-1
repayment ability will often be evidenced by many of the following
characteristics: leading market positions in well-established industries; high
rates of return on funds employed; conservative capitalization structure with
moderate reliance on debt and ample asset protection; broad margins in earnings
coverage of fixed financial charges and high internal cash generation; and
well-established access to a range of financial markets and assured sources of
alternate liquidity.
1-A
<PAGE>
"Prime-2" - Issuers (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
"Prime-3" - Issuers (or supporting institutions) have an
acceptable ability for repayment of senior short-term debt obligations. The
effect of industry characteristics and market compositions may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and may require relatively high
financial leverage. Adequate alternate liquidity is maintained.
"Not Prime" - Issuers do not fall within any of the Prime
rating categories.
The three rating categories of Duff & Phelps for investment
grade commercial paper and short-term debt are "D-1," "D-2" and "D-3." Duff &
Phelps employs three designations, "D-1+," "D-1" and "D-1-," within the highest
rating category. The following summarizes the rating categories used by Duff &
Phelps for commercial paper:
"D-1+" - Debt possesses the highest certainty of timely
payment. Short-term liquidity, including internal operating factors and/or
access to alternative sources of funds, is outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations.
"D-1" - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.
"D-1-" - Debt possesses high certainty of timely payment.
Liquidity factors are strong and supported by good fundamental protection
factors. Risk factors are very small.
"D-2" - Debt possesses good certainty of timely payment.
Liquidity factors and company fundamentals are sound. Although ongoing funding
needs may enlarge total financing requirements, access to capital markets is
good. Risk factors are small.
"D-3" - Debt possesses satisfactory liquidity and other
protection factors qualify issues as to investment grade. Risk factors are
larger and subject to more variation. Nevertheless, timely payment is expected.
"D-4" - Debt possesses speculative investment characteristics.
Liquidity is not sufficient to insure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.
"D-5" - Issuer has failed to meet scheduled principal and/or
interest payments.
Fitch IBCA short-term ratings apply to debt obligations that
have time horizons of less than 12 months for most obligations, or up to three
years for U.S. public finance securities. The following summarizes the rating
categories used by Fitch IBCA for short-term obligations:
2-A
<PAGE>
"F1" - Securities possess the highest credit quality. This
designation indicates the best capacity for timely payment of financial
commitments and may have an added "+" to denote any exceptionally strong credit
feature.
"F2" - Securities possess good credit quality. This
designation indicates a satisfactory capacity for timely payment of financial
commitments, but the margin of safety is not as great as in the case of the
higher ratings.
"F3" - Securities possess fair credit quality. This
designation indicates that the capacity for timely payment of financial
commitments is adequate; however, near-term adverse changes could result in a
reduction to non-investment grade.
"B" - Securities possess speculative credit quality. This
designation indicates minimal capacity for timely payment of financial
commitments, plus vulnerability to near-term adverse changes in financial and
economic conditions.
"C" - Securities possess high default risk. This designation
indicates that default is a real possibility and that the capacity for meeting
financial commitments is solely reliant upon a sustained, favorable business and
economic environment.
"D" - Securities are in actual or imminent payment default.
Thomson Financial BankWatch short-term ratings assess the
likelihood of an untimely payment of principal and interest of debt instruments
with original maturities of one year or less. The following summarizes the
ratings used by Thomson Financial BankWatch:
"TBW-1" - This designation represents Thomson Financial
BankWatch's highest category and indicates a very high likelihood that principal
and interest will be paid on a timely basis.
"TBW-2" - This designation represents Thomson Financial
BankWatch's second-highest category and indicates that while the degree of
safety regarding timely repayment of principal and interest is strong, the
relative degree of safety is not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents Thomson Financial
BankWatch's lowest investment-grade category and indicates that while the
obligation is more susceptible to adverse developments (both internal and
external) than those with higher ratings, the capacity to service principal and
interest in a timely fashion is considered adequate.
"TBW-4" - This designation represents Thomson Financial
BankWatch's lowest rating category and indicates that the obligation is regarded
as non-investment grade and therefore speculative.
Corporate and Municipal Long-Term Debt Ratings
- ----------------------------------------------
The following summarizes the ratings used by Standard & Poor's
for corporate and municipal debt:
3-A
<PAGE>
"AAA" - An obligation rated "AAA" has the highest rating
assigned by Standard & Poor's. The obligor's capacity to meet its financial
commitment on the obligation is extremely strong.
"AA" - An obligation rated "AA" differs from the highest rated
obligations only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
"A" - An obligation rated "A" is somewhat more susceptible to
the adverse effects of changes in circumstances and economic conditions than
obligations in higher-rated categories. However, the obligor's capacity to meet
its financial commitment on the obligation is still strong.
"BBB" - An obligation rated "BBB" exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
Obligations rated "BB," "B," "CCC," "CC" and "C" are regarded
as having significant speculative characteristics. "BB" indicates the least
degree of speculation and "C" the highest. While such obligations will likely
have some quality and protective characteristics, these may be outweighed by
large uncertainties or major exposures to adverse conditions.
"BB" - An obligation rated "BB" is less vulnerable to
nonpayment than other speculative issues. However, it faces major ongoing
uncertainties or exposure to adverse business, financial or economic conditions
which could lead to the obligor's inadequate capacity to meet its financial
commitment on the obligation.
"B" - An obligation rated "B" is more vulnerable to nonpayment
than obligations rated "BB", but the obligor currently has the capacity to meet
its financial commitment on the obligation. Adverse business, financial or
economic conditions will likely impair the obligor's capacity or willingness to
meet its financial commitment on the obligation.
"CCC" - An obligation rated "CCC" is currently vulnerable to
nonpayment, and is dependent upon favorable business, financial and economic
conditions for the obligor to meet its financial commitment on the obligation.
In the event of adverse business, financial, or economic conditions, the obligor
is not likely to have the capacity to meet its financial commitment on the
obligation.
"CC" - An obligation rated "CC" is currently highly vulnerable
to nonpayment.
"C" - The "C" rating may be used to cover a situation where a
bankruptcy petition has been filed or similar action has been taken, but
payments on this obligation are being continued.
"D" - An obligation rated "D" is in payment default. The "D"
rating category is used when payments on an obligation are not made on the date
due even if the applicable grace period has not expired, unless Standard and
Poor's believes that such payments will be made during such grace period. The
"D" rating also will be used upon the filing of a bankruptcy petition or the
taking of a similar action if payments on an obligation are jeopardized.
4-A
<PAGE>
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC"
may be modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.
"r" - This symbol is attached to the ratings of instruments
with significant noncredit risks. It highlights risks to principal or volatility
of expected returns which are not addressed in the credit rating. Examples
include: obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk - such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
The following summarizes the ratings used by Moody's for corporate and
municipal long-term debt:
"Aaa" - Bonds are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
"Aa" - Bonds are judged to be of high quality by all
standards. Together with the "Aaa" group they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risk appear somewhat larger than the "Aaa"
securities.
"A" - Bonds possess many favorable investment attributes and
are to be considered as upper-medium-grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
"Baa" - Bonds are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
"Ba," "B," "Caa," "Ca," and "C" - Bonds that possess one of
these ratings provide questionable protection of interest and principal ("Ba"
indicates speculative elements; "B" indicates a general lack of characteristics
of desirable investment; "Caa" are of poor standing; "Ca" represents obligations
which are speculative in a high degree; and "C" represents the lowest rated
class of bonds). "Caa," "Ca" and "C" bonds may be in default.
Con. (---) - Bonds for which the security depends upon the
completion of some act or the fulfillment of some condition are rated
conditionally. These are bonds secured by (a) earnings of projects under
construction; (b) earnings of projects unseasoned in operating experience; (c)
rentals which begin when facilities are completed; or (d) payments to which some
other limiting condition attaches. Parenthetical rating denotes probable credit
stature upon completion of construction or elimination of basis of condition.
5-A
<PAGE>
Note: Moody's applies numerical modifiers 1, 2, and 3 in each
generic rating classification from "Aa" through "Caa". The modifier 1 indicates
that the obligation ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking
in the lower end of its generic rating category.
The following summarizes the long-term debt ratings used by
Duff & Phelps for corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit
quality. The risk factors are negligible, being only slightly more than for
risk-free U.S. Treasury debt.
"AA" - Debt is considered to be of high credit quality.
Protection factors are strong. Risk is modest but may vary slightly from time to
time because of economic conditions.
"A" - Debt possesses protection factors which are average but
adequate. However, risk factors are more variable in periods of greater economic
stress.
"BBB" - Debt possesses below-average protection factors but
such protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles.
"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one of
these ratings is considered to be below investment grade. Although below
investment grade, debt rated "BB" is deemed likely to meet obligations when due.
Debt rated "B" possesses the risk that obligations will not be met when due.
Debt rated "CCC" is well below investment grade and has considerable uncertainty
as to timely payment of principal, interest or preferred dividends. Debt rated
"DD" is a defaulted debt obligation, and the rating "DP" represents preferred
stock with dividend arrearages.
To provide more detailed indications of credit quality, the
"AA," "A," "BBB," "BB" and "B" ratings may be modified by the addition of a plus
(+) or minus (-) sign to show relative standing within these major categories.
The following summarizes the ratings used by Fitch IBCA for
corporate and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the
highest credit quality. These ratings denote the lowest expectation of credit
risk and are assigned only in case of exceptionally strong capacity for timely
payment of financial commitments. This capacity is highly unlikely to be
adversely affected by foreseeable events.
"AA" - Bonds considered to be investment grade and of very
high credit quality. These ratings denote a very low expectation of credit risk
and indicate very strong capacity for timely payment of financial commitments.
This capacity is not significantly vulnerable to foreseeable events.
"A" - Bonds considered to be investment grade and of high
credit quality. These ratings denote a low expectation of credit risk and
indicate strong capacity for timely payment of financial commitments. This
capacity may, nevertheless, be more vulnerable to changes in circumstances or in
economic conditions than is the case for higher ratings.
6-A
<PAGE>
"BBB" - Bonds considered to be investment grade and of good
credit quality. These ratings denote that there is currently a low expectation
of credit risk. The capacity for timely payment of financial commitments is
considered adequate, but adverse changes in circumstances and in economic
conditions are more likely to impair this capacity.
"BB" - Bonds considered to be speculative. These ratings
indicate that there is a possibility of credit risk developing, particularly as
the result of adverse economic changes over time; however, business or financial
alternatives may be available to allow financial commitments to be met.
Securities rated in this category are not investment grade.
"B" - Bonds are considered highly speculative. These ratings
indicate that significant credit risk is present, but a limited margin of safety
remains. Financial commitments are currently being met; however, capacity for
continued payment is contingent upon a sustained, favorable business and
economic environment.
"CCC", "CC", "C" - Bonds have high default risk. Default is a
real possibility, and capacity for meeting financial commitments is solely
reliant upon sustained, favorable business or economic developments. "CC"
ratings indicate that default of some kind appears probable, and "C" ratings
signal imminent default.
"DDD," "DD" and "D" - Bonds are in default. The ratings of
obligations in this category are based on their prospects for achieving partial
or full recovery in a reorganization of the obligor. While expected recovery
values are highly speculative and cannot be estimated with any precision, the
following serve as general guidelines: "DDD" obligations have the highest
potential for recovery, around 90% - 100% of outstanding amounts and accrued
interest. "DD" indicates potential recoveries in the range of 50% - 90%, and "D"
the lowest recovery potential, i.e. below 50%.
Entities rated in this category have defaulted on some or all
of their obligations. Entities rated "DDD" have the highest prospect for
resumption of performance or continued operation with or without a formal
reorganization process. Entities rated "DD" and "D" are generally undergoing a
formal reorganization or liquidation process; those rated "DD" are likely to
satisfy a higher portion of their outstanding obligations, while entities rated
"D" have a poor prospect for repaying all obligations.
To provide more detailed indications of credit quality, the
Fitch IBCA ratings from and including "AA" to "CCC" may be modified by the
addition of a plus (+) or minus (-) sign to show relative standing within these
major rating categories.
Thomson Financial BankWatch assesses the likelihood of an
untimely repayment of principal or interest over the term to maturity of long
term debt and preferred stock which are issued by United States commercial
banks, thrifts and non-bank banks; non-United States banks; and broker-dealers.
The following summarizes the rating categories used by Thomson Financial
BankWatch for long-term debt ratings:
"AAA" - This designation indicates that the ability to repay
principal and interest on a timely basis is extremely high.
7-A
<PAGE>
"AA" - This designation indicates a very strong ability to
repay principal and interest on a timely basis, with limited incremental risk
compared to issues rated in the highest category.
"A" - This designation indicates that the ability to repay
principal and interest is strong. Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
"BBB" - This designation represents the lowest
investment-grade category and indicates an acceptable capacity to repay
principal and interest. Issues rated "BBB" are more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.
"BB," "B," "CCC," and "CC," - These designations are assigned
by Thomson Financial BankWatch to non-investment grade long-term debt. Such
issues are regarded as having speculative characteristics regarding the
likelihood of timely payment of principal and interest. "BB" indicates the
lowest degree of speculation and "CC" the highest degree of speculation.
"D" - This designation indicates that the long-term debt is in
default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC"
may include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
Municipal Note Ratings
- ----------------------
A Standard and Poor's rating reflects the liquidity concerns
and market access risks unique to notes due in three years or less. The
following summarizes the ratings used by Standard & Poor's Ratings Group for
municipal notes:
"SP-1" - The issuers of these municipal notes exhibit a strong
capacity to pay principal and interest. Those issues determined to possess a
very strong capacity to pay debt service are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit
satisfactory capacity to pay principal and interest, with some vulnerability to
adverse financial and economic changes over the term of the notes.
"SP-3" - The issuers of these municipal notes exhibit
speculative capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other
short-term loans are designated Moody's Investment Grade ("MIG") and variable
rate demand obligations are designated Variable Moody's Investment Grade
("VMIG"). Such ratings recognize the differences between short-term credit risk
and long-term risk. The following summarizes the ratings by Moody's Investors
Service, Inc. for short-term notes:
8-A
<PAGE>
"MIG-1"/"VMIG-1" - This designation denotes best quality.
There is present strong protection by established cash flows, superior liquidity
support or demonstrated broad-based access to the market for refinancing.
"MIG-2"/"VMIG-2" - This designation denotes high quality.
Margins of protection are ample although not so large as in the preceding
group.
"MIG-3"/"VMIG-3" - This designation denotes favorable quality,
with all security elements accounted for but lacking the undeniable strength of
the preceding grades. Liquidity and cash flow protection may be narrow and
market access for refinancing is likely to be less well established.
"MIG-4"/"VMIG-4" - This designation denotes adequate quality.
Protection commonly regarded as required of an investment security is present
and although not distinctly or predominantly speculative, there is specific
risk.
"SG" - This designation denotes speculative quality. Debt
instruments in this category lack of margins of protection.
Fitch IBCA and Duff & Phelps use the short-term ratings
described under Commercial Paper Ratings for municipal notes.
9-A
<PAGE>
APPENDIX B
BUSINESS PRINCIPLES OF GOLDMAN, SACHS & CO.
Goldman Sachs is noted for its Business Principles, which guide all of
the firm's activities and serve as the basis for its distinguished reputation
among investors worldwide.
Our client's interests always come first. Our experience shows that if
we serve our clients well, our own success will follow.
Our assets are our people, capital and reputation. If any of these is
ever diminished, the last is the most difficult to restore. We are dedicated to
complying fully with the letter and spirit of the laws, rules and ethical
principles that govern us. Our continued success depends upon unswerving
adherence to this standard.
We take great pride in the professional quality of our work. We have an
uncompromising determination to achieve excellence in everything we undertake.
Though we may be involved in a wide variety and heavy volume of activity, we
would, if it came to a choice, rather be best than biggest.
We stress creativity and imagination in everything we do. While
recognizing that the old way may still be the best way, we constantly strive to
find a better solution to a client's problems. We pride ourselves on having
pioneered many of the practices and techniques that have become standard in the
industry.
We make an unusual effort to identify and recruit the very best person
for every job. Although our activities are measured in billions of dollars, we
select our people one by one. In a service business, we know that without the
best people, we cannot be the best firm.
We offer our people the opportunity to move ahead more rapidly than is
possible at most other places. We have yet to find limits to the responsibility
that our best people are able to assume. Advancement depends solely on ability,
performance and contribution to the Firm's success, without regard to race,
color, religion, sex, age, national origin, disability, sexual orientation, or
any other impermissible criterion or circumstance.
We stress teamwork in everything we do. While individual creativity is
always encouraged, we have found that team effort often produces the best
results. We have no room for those who put their personal interests ahead of the
interests of the firm and its clients.
The dedication of our people to the Firm and the intense effort they
give their jobs are greater than one finds in most other organizations. We think
that this is an important part of our success.
Our profits are a key to our success. They replenish our capital and
attract and keep our best people. It is our practice to share our profits
generously with all who help create them. Profitability is crucial to our
future.
We consider our size an asset that we try hard to preserve. We want to
be big enough to undertake the largest project that any of our clients could
contemplate, yet small enough to maintain
1-B
<PAGE>
the loyalty, the intimacy and the esprit de corps that we all treasure and that
contribute greatly to our success.
We constantly strive to anticipate the rapidly changing needs of our
clients and to develop new services to meet those needs. We know that the world
of finance will not stand still and that complacency can lead to extinction.
We regularly receive confidential information as part of our normal
client relationships. To breach a confidence or to use confidential information
improperly or carelessly would be unthinkable.
Our business is highly competitive, and we aggressively seek to expand
our client relationships. However, we must always be fair to competitors and
must never denigrate other firms.
Integrity and honesty are the heart of our business. We expect our
people to maintain high ethical standards in everything they do, both in their
work for the firm and in their personal lives.
2-B
<PAGE>
GOLDMAN, SACHS & CO.'S INVESTMENT BANKING
AND SECURITIES ACTIVITIES
Goldman Sachs is a leading financial services firm traditionally known on Wall
Street and around the world for its institutional and private client service.
.. With thirty-seven offices worldwide Goldman Sachs employs over 11,000
professionals focused on opportunities in major markets.
.. The number one underwriter of all international equity issues from
1989-1997.
.. The number one lead manager of U.S. common stock offerings for the past
nine years (1989-1997).*
.. The number one lead manager for initial public offerings (IPOs) worldwide
(1989-1997).
* Source: Securities Data Corporation. Common stock ranking excludes REITS,
-----------------------------------
Investment Trusts and Rights.
3-B
<PAGE>
GOLDMAN, SACHS & CO.'S HISTORY OF EXCELLENCE
1869 Marcus Goldman opens Goldman Sachs for business
1890 Dow Jones Industrial Average first published
1896 Goldman, Sachs & Co. joins New York Stock Exchange
1906 Goldman, Sachs & Co. takes Sears Roebuck & Co. public (at 93 years,
the firm's longest-standing client relationship)
Dow Jones Industrial Average tops 100
1925 Goldman, Sachs & Co. finances Warner Brothers, producer of the first
talking film
1956 Goldman, Sachs & Co. co-manages Ford's public offering, the largest
to date
1970 Goldman, Sachs & Co. opens London office
1972 Dow Jones Industrial Average breaks 1000
1986 Goldman, Sachs & Co. takes Microsoft public
1988 Goldman Sachs Asset Management is formally established
1991 Goldman, Sachs & Co. provides advisory services for the largest
privatization in the region of the sale of Telefonos de Mexico
1995 Goldman Sachs Asset Management introduces Global Tactical Asset
Allocation Program
Dow Jones Industrial Average breaks 5000
1996 Goldman, Sachs & Co. takes Deutsche Telekom public
Dow Jones Industrial Average breaks 6000
1997 Dow Jones Industrial Average breaks 7000
Goldman Sachs Asset Management increases assets under management by
100% over 1996
1998 Goldman Sachs Asset Management reaches $195.5 billion in assets under
management
Dow Jones Industrial Average breaks 9000
1999 Goldman Sachs becomes a public company
4-B
<PAGE>
APPENDIX C
Statement of Intention
(applicable only to Class A Shares)
If a shareholder anticipates purchasing within a 13-month period Class
A Shares of a Fund alone or in combination with Class A Shares of another
Goldman Sachs Fund in the amount of $100,000 or more in the case of the
Government Income, Municipal Income, Core Fixed Income, Global Income and High
Yield Funds; $250,000 or more in the case of the Short Duration Government and
Short-Duration Tax-Free Funds; and $500,000 or more in the case of the
Adjustable Rate Government Fund, the shareholder may obtain shares of the Fund
at the same reduced sales charge as though the total quantity were invested in
one lump sum by checking and filing the Statement of Intention in the Account
Application. Income dividends and capital gain distributions taken in additional
shares will not apply toward the completion of the Statement of Intention.
To ensure that the reduced price will be received on future purchases,
the investor must inform Goldman Sachs that the Statement of Intention is in
effect each time shares are purchased. Subject to the conditions mentioned
below, each purchase will be made at the public offering price applicable to a
single transaction of the dollar amount specified on the Account Application.
The investor makes no commitment to purchase additional shares, but if the
investor's purchases within 13 months plus the value of shares credited toward
completion do not total the sum specified, the investor will pay the increased
amount of the sales charge prescribed in the Escrow Agreement.
Escrow Agreement
Out of the initial purchase (or subsequent purchases if necessary), 5%
of the dollar amount specified on the Account Application will be held in escrow
by the Transfer Agent in the form of shares registered in the investor's name.
All income dividends and capital gains distributions on escrowed shares will be
paid to the investor or to his or her order. When the minimum investment so
specified is completed (either prior to or by the end of the 13th month), the
investor will be notified and the escrowed shares will be released.
If the intended investment is not completed, the investor will be asked
to remit to Goldman Sachs any difference between the sales charge on the amount
specified and on the amount actually attained. If the investor does not within
20 days after written request by Goldman Sachs pay such difference in the sales
charge, the Transfer Agent will redeem, pursuant to the authority given by the
investor in the Account Application, an appropriate number of the escrowed
shares in order to realize such difference. Shares remaining after any such
redemption will be released by the Transfer Agent.
1-C
<PAGE>
GOLDMAN SACHS ADJUSTABLE RATE GOVERNMENT FUND
Statement of Investments
October 31, 1999
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
<S> <C> <C> <C>
Mortgage Backed Obligations - 93.7%
Adjustable Rate Federal Home Loan Mortgage Corp.
(FHLMC)# - 25.1%
$ 1,457,227 6.74% 07/01/2018 $ 1,492,972
3,006,727 7.57 11/01/2018 3,061,239
717,898 6.78 12/01/2018 736,520
4,520,413 6.54 05/01/2019 4,595,995
12,052,166 6.96 11/01/2019 12,351,180
6,353,637 6.61 01/01/2020 6,481,727
2,394,289 6.90 05/01/2020 2,463,867
12,591,158 6.64 06/01/2020 12,846,003
18,745,085 6.96 02/01/2022 19,210,713
3,558,783 6.50 06/01/2022 3,640,920
2,095,445 6.60 08/01/2022 2,134,735
2,840,640 6.46 09/01/2022 2,902,424
3,350,423 6.81 09/01/2022 3,433,647
4,780,226 6.77 06/01/2024 4,910,917
1,832,644 6.31 02/01/2028 1,860,701
2,931,282 6.80 07/01/2030 3,008,228
-----------
$85,131,788
------------------------------------------------------------------------------------------------
Adjustable Rate Federal National Mortgage Association
(FNMA)# - 43.7%
$ 724,246 7.30% 04/01/2003 $ 719,901
573,162 7.00 11/01/2014 587,044
3,344,265 5.88 03/01/2017 3,365,702
1,912,424 6.68 03/01/2017 1,966,221
7,154,332 6.82 04/01/2017 7,294,771
343,729 6.70 11/01/2017 352,913
2,601,337 5.59 03/01/2018 2,602,586
619,995 6.46 03/01/2018 632,400
504,891 6.85 05/01/2018 515,145
4,871,631 6.57 06/01/2018 5,009,790
2,653,090 6.56 07/01/2018 2,692,462
3,544,199 6.46 08/01/2018 3,621,569
2,067,465 6.87 08/01/2018 2,139,910
1,070,927 6.61 10/01/2018 1,094,519
98,911 6.47 11/01/2018 100,457
3,245,292 6.66 11/01/2018 3,315,780
8,050,174@ 6.49 12/01/2018 8,315,105
2,944,879 6.57 12/01/2018 3,014,370
1,806,206 6.40 06/01/2019 1,847,730
887,001 6.47 07/01/2019 905,158
2,216,684 7.06 07/01/2019 2,281,456
935,946 6.23 08/01/2019 953,495
1,467,291 6.85 03/01/2020 1,507,157
10,838,368 7.12 05/01/2020 11,077,137
4,903,774 6.72 07/01/2020 5,020,239
5,436,587 5.66 12/25/2020 5,390,974
3,035,347 6.85 01/01/2021 3,130,687
2,381,435 6.80 02/01/2021 2,452,188
2,885,569 6.51 04/01/2021 2,945,099
24,376,331 6.73 09/01/2021 25,073,250
11,033,852 6.92 02/01/2022 11,349,972
1,228,832 6.34 05/20/2022 1,237,852
4,195,278 6.90 06/01/2022 4,327,555
920,163 6.80 08/01/2022 942,164
------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
<S> <C> <C> <C>
Mortgage Backed Obligations - (continued)
Adjustable Rate Federal National Mortgage Association
(FNMA)# - (continued)
$ 3,521,061 6.80% 09/01/2022 $ 3,635,496
3,519,987 7.07 02/01/2023 3,646,495
174,074 6.22 12/01/2023 170,810
8,198,600 6.40 06/20/2024 8,267,222
383,943 6.79 09/01/2025 395,093
2,737,593 6.58 08/01/2027 2,796,616
1,341,839 6.65 10/01/2027 1,373,560
------------
$148,068,050
------------------------------------------------------------------------------------------------
Adjustable Rate Government National Mortgage Association (GNMA)# - 2.9%
$ 1,527,072 6.38% 03/20/2016 $ 1,549,031
2,999,110 6.63 08/20/2018 3,030,990
3,490,970 6.38 02/20/2021 3,540,053
1,723,747 6.38 06/20/2022 1,740,709
------------
$ 9,860,783
------------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp. (FHLMC) - 3.9%
$ 1,088,828 5.50% 01/01/2013 $ 1,025,031
370,857 5.50 03/01/2013 349,533
1,758,612 6.50 03/01/2013 1,725,093
100,184 5.50 04/01/2013 94,298
3,697,445 6.50 04/01/2013 3,626,972
1,494,627 6.50 05/01/2013 1,466,139
539,305 5.50 06/01/2013 507,621
3,090,531 6.50 06/01/2013 3,034,985
676,748 5.50 07/01/2013 636,989
786,038 5.50 08/01/2013 739,859
32,959 5.50 12/01/2013 31,022
------------
$ 13,237,542
------------------------------------------------------------------------------------------------
Federal National Mortgage Association (FNMA) - 2.9%
$ 5,460,590 7.00% 10/01/2002 $ 5,478,282
4,350,687 8.00 11/01/2017 4,459,411
------------
$ 9,937,693
------------------------------------------------------------------------------------------------
Government National Mortgage Association (GNMA) - 1.1%
$ 3,678,182 6.50% 08/15/2027 $ 3,537,933
------------------------------------------------------------------------------------------------
Collateralized Mortgage Obligations - 14.1%
Inverse Floater# - 1.1%
FNMA Series 1993-189, Class SA
$ 3,884,257 9.75% 10/25/2023 $ 3,806,028
------------------------------------------------------------------------------------------------
IOette. - 0.1%
FNMA Remic Trust Series 1990-145, Class B
$ 13,359 46.87% 12/25/2020 $ 278,794
------------------------------------------------------------------------------------------------
Planned Amortization Class (PAC) CMOs - 4.0%
FHLMC Series 1475, Class H
$ 4,000,000 6.75% 04/15/2006 $ 4,013,720
FHLMC Series 2055, Class OD
10,000,000 6.00 01/15/2012 9,534,300
------------
$ 13,548,020
------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
18
<PAGE>
GOLDMAN SACHS ADJUSTABLE RATE GOVERNMENT FUND
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
<S> <C> <C> <C>
Mortgage Backed Obligations - (continued)
Regular Floater CMOs# - 1.1%
FHLMC Series 2130, Class FC
$ 3,880,205 5.76% 03/15/2029 $ 3,720,845
----------------------------------------------------------------------------------------
Sequential Fixed Rate CMOs - 7.8%
FHLMC Series 1169, Class D
$ 851,000 7.00% 05/15/2021 $ 851,528
FHLMC Series 2064, Class M
7,300,000 6.00 06/15/2028 6,716,657
FNMA Remic Trust Series 1993-14, Class A
2,951,873 6.00 02/25/2008 2,905,263
FNMA Remic Trust Series 1993-144, Class B
4,178,279 9.00 11/25/2017 4,185,006
FNMA Remic Trust Series G93-39, Class A
2,595,979 5.70 08/25/2016 2,569,681
FNMA Remic Trust Series G97-4, Class C
6,693,177 7.50 06/17/2024 6,702,882
FNMA Series 1996-22, Class B
2,502,605 7.25 02/25/2024 2,494,397
------------
$ 26,425,414
----------------------------------------------------------------------------------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS $ 47,779,101
----------------------------------------------------------------------------------------
TOTAL MORTGAGE BACKED OBLIGATIONS
(Cost $322,856,317) $317,552,890
----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
Agency Debentures - 3.0%
<S> <C> <C> <C>
Federal National Mortgage Association (FNMA)
$7,500,000 5.63% 04/24/2002 $ 7,350,000
3,000,000 6.17 01/15/2008 2,827,620
-----------------------------------------------------------------------------------------------
TOTAL AGENCY DEBENTURES
(Cost $10,175,964) $ 10,177,620
-----------------------------------------------------------------------------------------------
Repurchase Agreement - 2.8%
Joint Repurchase Agreement Account
$9,400,000 5.33% 11/01/1999 $ 9,400,000
-----------------------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENT
(Cost $9,400,000) $ 9,400,000
-----------------------------------------------------------------------------------------------
TOTAL INVESTMENTS
(Cost $342,432,281) $337,130,510
-----------------------------------------------------------------------------------------------
</TABLE>
# Variable rate security. Coupon rate disclosed is that which is in effect at
October 31, 1999.
@ A portion of this security is segregated as collateral for initial margin
requirement on futures transactions.
.. Represents security with notional or nominal principal amount. The actual
effective yield of this security is different than the stated coupon due to
the amortization of related premiums.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
The accompanying notes are an integral part of these financial statements.
19
<PAGE>
GOLDMAN SACHS SHORT DURATION GOVERNMENT FUND
Statement of Investments
October 31, 1999
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
<S> <C> <C> <C>
Mortgage Backed Obligations - 92.0%
Adjustable Rate Federal Home Loan Mortgage Corp.
(FHLMC)# - 5.1%
$ 950,768 6.50% 08/01/2017 $ 965,476
848,592@ 7.26 05/01/2018 848,176
2,674,998 6.80 06/01/2018 2,738,395
965,843 6.78 12/01/2018 990,897
4,230,013 6.96 02/01/2022 4,335,086
1,219,602 7.76 10/01/2025 1,246,226
------------
$ 11,124,256
---------------------------------------------------------------------------------------------
Adjustable Rate Federal National Mortgage
Association (FNMA)# - 15.3%
$ 1,375,589 7.00% 11/01/2014 $ 1,408,906
2,423,248 6.69 11/01/2017 2,461,948
2,830,042 7.36 02/01/2018 2,872,371
2,515,753 6.52 06/01/2018 2,539,804
2,386,872 6.87 03/01/2019 2,427,902
5,375,289 7.13 05/01/2020 5,493,707
3,399,219 6.71 12/01/2020 3,457,685
3,642,416 6.85 01/01/2021 3,756,824
920,163 6.81 08/01/2022 942,164
2,732,609 7.99 01/01/2023 2,789,650
3,469,960 6.51 07/01/2028 3,490,884
1,847,875 6.80 01/01/2031 1,904,752
------------
$ 33,546,597
---------------------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp. (FHLMC) - 16.1%
$ 908,645 6.50% 04/01/2013 $ 891,317
1,841,891 6.50 05/01/2013 1,806,785
924,267 6.50 06/01/2013 906,641
5,942,776 5.50 01/01/2014 5,593,638
4,248,684 8.00 01/01/2028 4,336,292
758,462 7.00 08/01/2028 745,189
1,017,392 7.00 09/01/2028 999,588
6,994,245 7.00 09/01/2029 6,873,664
13,000,000 7.50 TBA-30 yr* 13,030,000
------------
$ 35,183,114
---------------------------------------------------------------------------------------------
Federal National Mortgage Association (FNMA) - 8.3%
$ 3,854,534 7.00% 10/01/2002 $ 3,867,022
1,004,396 8.50 05/01/2010 1,029,817
32,712 6.00 08/01/2010 31,669
31,015 6.00 11/01/2010 30,027
92,864 6.00 01/01/2011 89,730
141,407 6.00 02/01/2011 136,778
4,542,829 6.00 03/01/2011 4,395,900
1,926,070 6.00 04/01/2011 1,862,288
2,128,103 6.00 05/01/2011 2,056,280
331,372 6.00 06/01/2011 320,188
234,400 6.00 07/01/2011 226,489
661,331 6.00 09/01/2011 639,011
61,249 6.00 12/01/2011 59,181
67,423 6.00 01/01/2012 65,148
349,529 6.00 03/01/2012 337,733
---------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
<S> <C> <C> <C>
Mortgage Backed Obligations - (continued)
Federal National Mortgage Association (FNMA) - (continued)
$ 253,206 6.00% 04/01/2013 $ 244,661
322,006 6.00 11/01/2013 311,138
553,742 6.00 01/01/2014 526,914
2,025,596 6.00 03/01/2014 1,885,703
------------
$ 18,115,677
------------------------------------------------------------------------------------------------
Government National Mortgage Association (GNMA) - 5.8%
$ 1,058,601 6.50% 06/15/2008 $ 1,045,983
609,251 6.50 07/15/2008 601,989
1,914,366 6.50 08/15/2008 1,891,547
1,159,194 6.50 09/15/2008 1,145,376
187,778 6.50 10/15/2008 185,539
53,699 6.50 11/15/2008 53,059
134,371 9.00 12/15/2008 140,630
95,095 6.50 01/15/2009 93,847
181,069 9.00 01/15/2009 189,767
15,761 6.50 03/15/2009 15,573
79,145 6.50 04/15/2009 78,106
814,805 6.50 05/15/2009 804,106
80,097 6.50 07/15/2009 79,046
81,580 6.50 11/15/2009 80,509
63,240 9.00 01/15/2010 66,429
578,502 9.00 07/15/2012 604,893
3,959,961 7.00 10/15/2023 3,910,461
1,839,091 6.50 08/15/2027 1,768,966
------------
$ 12,755,826
------------------------------------------------------------------------------------------------
Collateralized Mortgage Obligations - 41.4%
Interest Only. - 0.3%
FHLMC Series 1161, Class U
$ 23,190 12.00% 11/15/2021 $ 637,302
------------------------------------------------------------------------------------------------
Inverse Floater# - 2.0%
FNMA Remic Trust Series 1990-134, Class SC
$ 968,144 13.44% 11/25/2020 $ 1,045,295
FNMA Remic Trust Series 1991-42, Class S
392,814 8.16 05/25/2021 369,520
FNMA Remic Trust Series 1993-164, Class SD
1,500,000 7.07 09/25/2008 1,400,430
FNMA Remic Trust Series 1993-231, Class SA
1,681,686 6.19 12/25/2008 1,539,399
------------
$ 4,354,644
------------------------------------------------------------------------------------------------
Inverse Floating Rate - Interest Only#. - 0.0%
FHLMC Series 1684, Class JD
$ 1,190,506 3.94% 08/15/2020 $ 46,656
FNMA Remic Trust Series 1993-110, Class SC
331,660 3.74 04/25/2019 3,505
------------
$ 50,161
------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
21
<PAGE>
GOLDMAN SACHS SHORT DURATION GOVERNMENT FUND
Statement of Investments
October 31, 1999
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
<S> <C> <C> <C>
Mortgage Backed Obligations - (continued)
Planned Amortization Class (PAC) CMOs - 15.5%
FHLMC Series 1556, Class G
$ 2,000,000 6.35% 10/15/2010 $ 1,990,620
FHLMC Series 16, Class PG
7,500,000 6.35 03/25/2018 7,474,200
FHLMC Series 1916, Class PC
3,700,000 6.75 12/15/2011 3,638,136
FHLMC Series 1987, Class L
4,000,000 6.20 08/25/2022 3,830,280
FHLMC Series 2055, Class OD
3,000,000 6.00 01/15/2012 2,860,290
FHLMC Series 2130, Class QY
2,810,256 8.50 02/15/2019 2,928,174
FHLMC Series 2149, Class TF
1,500,000 6.50 05/15/2024 1,439,565
FNMA Remic Trust Series 1997-84, Class PA
4,000,000 5.90 11/25/2021 3,803,720
FNMA Remic Trust Series G93-31, Class PJ
3,000,000 6.55 10/25/2020 2,960,970
FNMA Series G93-32, Class PH
3,000,000 6.50 11/25/2022 2,927,460
------------
$ 33,853,415
------------------------------------------------------------------------------------------------
Planned Amortization-Interest Only. - 0.2%
FHLMC Series 1587, Class HA
$ 4,410,726 6.50% 10/15/2008 $ 369,619
------------------------------------------------------------------------------------------------
Principal Only& - 1.3%
FNMA Remic Trust Series G92-28, Class A
$ 3,364,206 6.09% 05/25/2007 $ 2,828,524
------------------------------------------------------------------------------------------------
Regular Floater CMOs# - 0.7%
FHLMC Series 1684, Class JC
$ 1,190,506 5.06% 08/15/2020 $ 1,180,827
FNMA Remic Trust Series 1993-110, Class FC
331,660 5.26 04/25/2019 329,895
------------
$ 1,510,722
------------------------------------------------------------------------------------------------
Sequential Fixed Rate CMOs - 19.9%
FHLMC Series 1033, Class G
$ 1,238,318 8.00% 01/15/2006 $ 1,260,372
FHLMC Series 1468, Class ZB
5,026,891 9.00 02/15/2021 5,324,685
FHLMC Series 1812, Class D
1,213,885 6.00 07/15/2008 1,206,674
FHLMC Series 1998, Class DB
3,012,161 9.50 01/17/2025 3,128,611
FHLMC Series 2152, Class AB
2,965,868 6.25 01/15/2026 2,837,565
FNMA Remic Trust Series 1960-16, Class E
6,056,201 9.00 03/25/2020 6,357,254
FNMA Remic Trust Series 1989-74, Class J
1,607,403 9.80 10/25/2019 1,692,852
FNMA Remic Trust Series 1992-119, Class Z
3,565,208 8.00 07/25/2022 3,568,880
FNMA Remic Trust Series 1993-33, Class ZA
6,707,326 7.50 09/25/2021 6,730,735
------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
<S> <C> <C> <C>
Mortgage Backed Obligations - (continued)
Sequential Fixed Rate CMOs - (continued)
FNMA Remic Trust Series G97-4, Class C
$ 7,789,185 7.50% 06/17/2024 $ 7,800,479
FNMA Series 1988-12, Class A
2,089,166 10.00 02/25/2018 2,188,382
GNMA Remic Trust Series 1995-3, Class DQ
1,345,071 8.05 06/16/2025 1,375,469
------------
$ 43,471,958
--------------------------------------------------------------------------------------------
Super Floater# - 0.7%
FNMA Remic Trust Series 88-12, Class B
$ 1,649,342 2.98% 02/25/2018 $ 1,585,672
--------------------------------------------------------------------------------------------
Support - 0.8%
FHLMC Series 16, Class M
$ 2,000,000 7.00% 08/25/2023 $ 1,868,420
--------------------------------------------------------------------------------------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS $ 90,530,437
--------------------------------------------------------------------------------------------
TOTAL MORTGAGE BACKED OBLIGATIONS
(Cost $204,106,315) $201,255,907
--------------------------------------------------------------------------------------------
Agency Debentures - 6.9%
Federal Farm Credit Bank
$ 3,600,000 5.88% 07/02/2001 $ 3,578,040
Federal Home Loan Bank
1,600,000 5.13 02/26/2002 1,559,280
Federal Home Loan Mortgage Corp.
3,000,000 5.63 02/20/2004 2,880,600
Federal National Mortgage Association
1,600,000 5.75 04/15/2003 1,570,125
Small Business Administration
1,379,731 7.20 06/01/2017 1,373,964
1,906,996 6.30 05/01/2018 1,808,482
2,397,019 6.30 06/01/2018 2,273,260
--------------------------------------------------------------------------------------------
TOTAL AGENCY DEBENTURES
(Cost $15,414,333) $ 15,043,751
--------------------------------------------------------------------------------------------
U.S. Treasury Obligation - 1.1%
United States Treasury Note
$ 2,500,000 5.75% 11/30/2002 $ 2,489,450
--------------------------------------------------------------------------------------------
TOTAL U.S. TREASURY OBLIGATION
(Cost $2,495,312) $ 2,489,450
--------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
22
<PAGE>
GOLDMAN SACHS SHORT DURATION GOVERNMENT FUND
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
<S> <C> <C> <C>
Repurchase Agreement - 8.4%
Joint Repurchase Agreement Account
$18,300,000 5.33% 11/01/1999 $ 18,300,000
------------------------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENT
(Cost $18,300,000) $ 18,300,000
------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS
(Cost $240,315,960) $237,089,108
------------------------------------------------------------------------------------------------
</TABLE>
# Variable rate security. Coupon rate disclosed is that which is in effect at
October 31, 1999.
* TBA (To Be Assigned) securities are purchased on a forward commitment basis
with an approximate (generally +/ -2.5%) principal amount and no definite
maturity date. The actual principal amount and maturity date will be
determined upon settlement when the specific mortgage pools are assigned.
.. Represents security with notional or nominal principal amount. The actual
effective yield of this security is different than the stated coupon due to
the amortization of related premiums.
& Security is issued with a zero coupon. The interest rate disclosed
represents effective yield to maturity.
@ A portion of this security is segregated as collateral for initial margin
requirement on futures transactions.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of net assets.
The accompanying notes are an integral part of these financial statements.
23
<PAGE>
GOLDMAN SACHS GOVERNMENT INCOME FUND
Statement of Investments
October 31, 1999
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
<S> <C> <C> <C>
Mortgage Backed Obligations - 59.7%
Federal Home Loan Mortgage Corp. (FHLMC) - 27.3%
$ 2,717,899 6.50% 08/01/2010 $ 2,685,257
737,780 6.00 12/01/2013 710,113
6,933,244 5.50 01/01/2014 6,529,866
26,891 7.00 03/01/2024 26,547
80,967 7.00 04/01/2024 79,930
617,611 7.00 08/01/2028 606,803
800,220 7.00 09/01/2028 786,216
3,381,304 7.00 04/01/2029 3,322,248
999,183 7.00 09/01/2029 981,957
1,998,341 7.00 10/01/2029 1,963,889
3,000,000 7.00 TBA-30 yr* 2,947,500
11,500,000 7.50 TBA-30 yr* 11,521,563
------------
$ 32,161,889
------------------------------------------------------------------------------------------------
Federal National Mortgage Association (FNMA) - 4.1%
$ 348,545 6.50% 08/01/2025 $ 336,562
209,128 6.50 09/01/2025 201,676
210,038 6.50 10/01/2025 202,554
282,411 6.50 11/01/2025 272,967
361,374 6.50 12/01/2025 347,094
18,025 6.50 05/01/2026 17,383
39,108 6.50 03/01/2028 37,471
738,942 6.50 04/01/2028 707,995
952,159 6.50 05/01/2028 912,282
766,401 6.50 06/01/2028 734,305
909,894 6.50 07/01/2028 871,788
99,488 6.50 08/01/2028 95,322
101,179 6.50 09/01/2028 96,942
------------
$ 4,834,341
------------------------------------------------------------------------------------------------
Government National Mortgage Association (GNMA) - 12.2%
$ 83,773 9.00% 10/15/2019 $ 88,564
73,768 9.00 12/15/2019 77,986
195,381 7.00 03/15/2023 192,939
566,263 7.00 05/15/2023 559,184
190,239 7.00 06/15/2023 187,861
1,531,766 7.00 07/15/2023 1,512,619
552,095 7.00 08/15/2023 545,194
569,654 7.00 09/15/2023 562,534
1,253,015 7.00 10/15/2023 1,236,289
489,100 7.00 11/15/2023 482,987
580,818 7.00 12/15/2023 573,558
925,188 6.50 03/15/2028 884,129
973,729 6.50 10/15/2028 930,515
998,098 6.50 11/15/2028 954,562
480,467 6.50 01/15/2029 459,144
3,897,480 6.50 02/15/2029 3,724,510
471,805 6.50 03/15/2029 451,042
466,597 6.50 04/15/2029 445,889
426,401 6.50 05/15/2029 407,478
111,804 6.50 08/15/2029 106,893
------------
$ 14,383,877
------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
<S> <C> <C> <C>
Mortgage Backed Obligations - (continued)
Collateralized Mortgage Obligations - 16.1%
Interest Only. - 0.1%
FNMA Interest-Only Stripped Security Series 151, Class 2
$ 273,991 9.50% 07/01/2022 $ 78,173
--------------------------------------------------------------------------------------------
Inverse Floater# - 2.2%
FNMA Remic Trust Series 1993-164, Class SD
$ 500,000 7.07% 09/25/2008 $ 466,810
FNMA Remic Trust Series 1993-231, Class SA
1,261,264 6.19 12/25/2008 1,154,549
FNMA Remic Trust Series 1993-138, Class SM
921,052 9.47 12/25/2021 935,770
------------
$ 2,557,129
--------------------------------------------------------------------------------------------
Inverse Floating Rate--Interest Only#. - 0.2%
Salomon Brothers Mortgage Securities VII Series 1996-6E, Class A2
$ 7,535,771 3.66% 03/30/2025 $ 202,938
--------------------------------------------------------------------------------------------
Non-Agency CMOs - 1.2%
Commercial Mortgage Asset Trust Series 1999-C1, Class A3
$ 250,000 6.64% 09/17/2010 $ 236,388
CS First Boston Mortgage Securities Corp. Series 1997-C2, Class A2
800,000 6.52 07/17/2007 768,688
First Union-Lehman Brothers Commercial Mortgage Services Series 1997-
C1, Class A2
400,000 7.30 12/18/2006 400,308
------------
$ 1,405,384
--------------------------------------------------------------------------------------------
Planned Amortization Class (PAC) CMOs - 7.3%
FHLMC Series 2055, Class OD
$ 4,000,000 6.00% 01/15/2012 $ 3,813,720
FNMA Remic Trust Series 1997-84, Class PB
2,000,000 5.50 01/25/2008 1,889,360
GE Capital Mortgage Services, Inc. Series 1997-8, Class A13
2,923,705 7.25 10/25/2027 2,922,030
------------
$ 8,625,110
--------------------------------------------------------------------------------------------
Principal Only& - 0.1%
FNMA Remic Trust Series G-35, Class N
$ 233,517 6.22% 10/25/2021 $ 185,250
--------------------------------------------------------------------------------------------
Sequential Fixed Rate CMOs - 2.3%
Citicorp Mortgage Securities, Inc. Series 1993-11, Class A6
$ 400,489 6.25% 09/25/2008 $ 387,417
FNMA Remic Trust Series 1998-58, Class VA
917,663 6.00 10/25/2008 882,186
GE Capital Mortgage Services, Inc. Series 1995-1, Class A8
1,406,403 8.40 02/25/2025 1,407,121
------------
$ 2,676,724
--------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
25
<PAGE>
GOLDMAN SACHS GOVERNMENT INCOME FUND
Statement of Investments
October 31, 1999
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
<S> <C> <C> <C>
Mortgage Backed Obligations - (continued)
Support - 2.7%
FHLMC Series 16, Class M
$ 1,000,000 7.00% 08/25/2023 $ 934,210
Housing Securities, Inc. Series 1994-1, Class A13
1,455,585 6.50 03/25/2009 1,324,218
Salomon Brothers Mortgage Securities VII Series 1996-6H, Class A1
1,000,000 6.00 09/30/2008 950,400
------------
$ 3,208,828
------------------------------------------------------------------------------------------------
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS $ 18,939,536
------------------------------------------------------------------------------------------------
TOTAL MORTGAGE BACKED OBLIGATIONS
(Cost $71,701,778) $ 70,319,643
------------------------------------------------------------------------------------------------
Agency Debentures - 10.7%
Federal Home Loan Bank
$ 1,000,000 5.68% 12/03/2007 $ 974,840
Federal Home Loan Mortgage Corp.
4,000,000 5.75 07/15/2003 3,898,680
Financing Corp. Stripped Securities - Principal Only&
2,000,000 7.10 03/07/2013 785,620
Small Business Administration
1,776,208 6.70 12/01/2016 1,722,868
1,504,151 7.15 03/01/2017 1,487,380
1,234,662 7.50 04/01/2017 1,243,687
713,773 7.30 05/01/2017 711,846
953,498 6.30 05/01/2018 904,241
958,808 6.30 06/01/2018 909,304
------------------------------------------------------------------------------------------------
TOTAL AGENCY DEBENTURES
(Cost $12,972,183) $ 12,638,466
------------------------------------------------------------------------------------------------
Asset-Backed Securities - 15.5%
Auto - 4.3%
Americredit Automobile Receivables Trust Series 1997-D, Class A3
$ 1,300,000 6.24% 09/05/2003 $ 1,288,702
Arcadia Automobile Receivables Trust Series 1998-C, Class A3
2,500,000 5.67 08/15/2006 2,450,391
CPS Auto Grantor Trust Series 1996-3, Class A
962,223 6.30 08/15/2002 957,113
Fasco Auto Trust Series 1996-1, Class A
234,017 6.65 11/15/2001 234,254
Olympic Automobile Receivables Trust Series 1994-B, Class A2
66,852 6.85 06/15/2001 66,862
------------
$ 4,997,322
------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
<S> <C> <C> <C>
Asset-Backed Securities - (continued)
Credit Card - 6.1%
Discover Card Master Trust I Series 1999-2, Class A
$ 2,500,000 5.90% 10/15/2004 $ 2,488,425
Fingerhut Master Trust Series 1998-2, Class A
2,750,000 6.23 02/15/2007 2,703,168
MBNA Master Credit Card Trust Series 1998-C, Class A#
2,000,000 5.46 11/15/2005 1,992,500
Metris Master Trust Series 1996-1, Class A
39,333 6.45 02/20/2002 39,333
------------
$ 7,223,426
--------------------------------------------------------------------------------------------
Home Equity# - 1.5%
AFC Home Equity Loan Trust Series 1997-1, Class A
$ 438,233 5.63% 03/25/2027 $ 438,812
First Franklin Mortgage Loan Series 1997-FF2, Class A
482,102 5.68 08/25/2028 481,438
First Franklin Mortgage Loan Series 1997-FF3, Class A2
890,619 5.63 11/20/2027 886,192
------------
$ 1,806,442
--------------------------------------------------------------------------------------------
Lease - 2.9%
AESOP Funding II LLC Series 1998-1, Class A+
$ 2,000,000 6.14% 05/20/2006 $ 1,895,960
First Sierra Receivables Series 1998-1, Class A4
1,600,000 5.63 08/12/2004 1,555,808
------------
$ 3,451,768
--------------------------------------------------------------------------------------------
Manufactured Housing - 0.7%
Mid-State Trust Series 4, Class A
$ 801,461 8.33% 04/01/2030 $ 822,916
--------------------------------------------------------------------------------------------
TOTAL ASSET-BACKED SECURITIES
(Cost $18,608,066) $ 18,301,874
--------------------------------------------------------------------------------------------
Insured Revenue Bond - 1.7%
New Jersey Economic Development Authority Series A
$ 2,000,000 7.43% 02/15/2029 $ 1,977,300
--------------------------------------------------------------------------------------------
TOTAL INSURED REVENUE BOND
(Cost $2,000,000) $ 1,977,300
--------------------------------------------------------------------------------------------
U.S. Treasury Obligations - 12.2%
United States Treasury Interest-Only Stripped Securities.
$ 920,000 6.38% 05/15/2008 $ 537,271
2,000,000 6.56 05/15/2012 889,800
2,100,000 6.60 02/15/2014 828,114
United States Treasury Principal-Only Stripped Securities&
2,000,000 6.09 11/15/2004 1,467,520
3,900,000 6.26 08/15/2005 2,730,351
5,950,000 6.55 11/15/2009 3,112,623
5,450,000 6.60 05/15/2017 1,739,150
650,000 6.60 02/15/2019 185,250
3,400,000@ 6.57 05/15/2020 897,736
--------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
26
<PAGE>
GOLDMAN SACHS GOVERNMENT INCOME FUND
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
<S> <C> <C> <C>
U.S. Treasury Obligations - (continued)
United States Treasury Bond
$ 1,400,000 7.88% 02/15/2021 $ 1,619,184
United States Treasury Note
350,000 5.75 11/30/2002 348,523
------------------------------------------------------------------------------------------------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $15,197,486) $ 14,355,522
------------------------------------------------------------------------------------------------
Repurchase Agreement - 13.2%
Joint Repurchase Agreement Account
$15,500,000 5.33% 11/01/1999 $ 15,500,000
------------------------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENT
(Cost $15,500,000) $ 15,500,000
------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS
(Cost $135,979,513) $133,092,805
------------------------------------------------------------------------------------------------
</TABLE>
* TBA (To Be Assigned) securities are purchased on a forward commitment basis
with an approximate (generally +/ -2.5%) principal amount and no definite
maturity date. The actual principal amount and maturity date will be
determined upon settlement when the specific mortgage pools are assigned.
.. Represents security with notional or nominal principal amount. The actual
effective yield of this security is different than the stated coupon due to
the amortization of related premiums.
# Variable rate security. Coupon rate disclosed is that which is in effect at
October 31, 1999.
& Security is issued with a zero coupon. The interest rate disclosed represents
effective yield to maturity.
++Security is exempt from registration under Rule 144A of the Securities Act
of 1933. Such securities may be resold, normally to qualified institutional
buyers in transactions exempt from registration. Total market value of Rule
144A securities amounted to $1,895,960 as of October 31, 1999.
@ A portion of this security is segregated as collateral for initial margin
requirement on futures transactions.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of net assets.
The accompanying notes are an integral part of these financial statements.
27
<PAGE>
GOLDMAN SACHS CORE FIXED INCOME FUND
Statement of Investments
October 31, 1999
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
<S> <C> <C> <C>
------------------------------------------------------------------------------------------------
Corporate Bonds - 35.0%
------------------------------------------------------------------------------------------------
Aerospace/Defense - 0.5%
Raytheon Co.
$ 250,000 6.45% 08/15/2002 $ 244,800
1,300,000 5.70 11/01/2003 1,226,264
------------
$ 1,471,064
------------------------------------------------------------------------------------------------
Airlines - 1.1%
Continental Airlines, Inc.
$ 325,234 7.75% 07/02/2014 $ 326,388
529,965 8.56 07/02/2014 547,814
Northwest Airlines, Inc.
1,989,581 8.97 01/02/2015 2,010,590
NWA Trust
136,715 8.26 03/10/2006 137,332
US Airways, Inc.
522,974 6.76 04/15/2008 486,167
------------
$ 3,508,291
------------------------------------------------------------------------------------------------
Automotive - 2.9%
Chrysler Financial Corp.
$ 430,000 6.09% 04/06/2001 $ 428,280
DaimlerChrysler NA Holding Corp.
1,000,000 6.90 09/01/2004 997,240
Ford Capital BV
325,000 9.88 05/15/2002 347,958
Ford Motor Co.
500,000 6.63 10/01/2028 444,785
Ford Motor Credit Co.
150,000 6.00 01/14/2003 146,530
740,000 6.13 04/28/2003 722,899
General Motors Acceptance Corp.
1,500,000 6.10 06/01/2001 1,484,226
375,000 9.63 12/15/2001 396,555
1,500,000 5.91 03/11/2002 1,472,505
The Hertz Corp.
1,075,000 6.70 06/15/2002 1,070,550
1,200,000 6.00 01/15/2003 1,166,976
500,000 7.00 07/15/2003 495,670
------------
$ 9,174,174
------------------------------------------------------------------------------------------------
Automotive Parts - 0.7%
The Pep Boys-Manny, Moe & Jack
$ 550,000 6.75% 03/10/2004 $ 506,897
100,000 6.52 07/16/2007 94,988
TRW, Inc.++
1,600,000 6.63 06/01/2004 1,552,379
------------
$ 2,154,264
------------------------------------------------------------------------------------------------
Broker Dealer - 0.1%
World Financial Properties++
$ 473,237 6.91% 09/01/2013 $ 450,806
------------------------------------------------------------------------------------------------
Building Materials - 0.5%
Owens Corning
$ 1,445,000 7.50% 05/01/2005 $ 1,391,636
------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
<S> <C> <C> <C>
------------------------------------------------------------------------------------------------
Corporate Bonds - (continued)
------------------------------------------------------------------------------------------------
Commercial Banks - 5.0%
Bank of America Corp.
$ 110,000 7.75% 07/15/2002 $ 112,593
400,000 7.50 10/15/2002 407,004
730,000 7.88 12/01/2002 749,761
1,200,000 9.20 05/15/2003 1,286,995
700,000 6.38 05/15/2005 678,776
810,000 7.25 10/15/2025 757,293
Bayerische Landesbank Girozentrale
600,000 5.88 12/01/2008 547,524
Citicorp
900,000 8.00 02/01/2003 930,078
Dime Bancorp, Inc.
810,000 6.38 01/30/2001 802,767
First Union Corp.
1,200,000 7.10 08/15/2004 1,205,112
Long Island Savings Bank
2,650,000 6.20 04/02/2001 2,610,488
Merita Bank Ltd.
650,000 6.50 04/01/2009 599,710
National Westminster Bank PLC
790,000 7.38 10/01/2009 783,688
Security Pacific Corp.
995,000 11.50 11/15/2000 1,042,850
The Bank of New York Co., Inc.
1,100,000 7.88 11/15/2002 1,135,167
The Money Store, Inc.
630,000 7.30 12/01/2002 636,206
Wells Fargo & Co.
1,440,000 6.63 07/15/2004 1,427,774
------------
$ 15,713,786
-----------------------------------------------------------------------------------------------
Conglomerates - 0.9%
Tyco International Group SA
$ 975,000 5.88% 11/01/2004 $ 918,060
1,850,000 6.38 06/15/2005 1,766,399
------------
$ 2,684,459
-----------------------------------------------------------------------------------------------
Consumer Cyclicals - 0.4%
Cendant Corp.
$1,100,000 7.50% 12/01/2000 $ 1,102,486
USI American Holdings, Inc.
150,000 7.25 12/01/2006 138,734
------------
$ 1,241,220
-----------------------------------------------------------------------------------------------
Consumer Non-Durables - 0.2%
AMETEK, Inc.
$ 600,000 7.20% 07/15/2008 $ 546,312
-----------------------------------------------------------------------------------------------
Consumer Products - 0.5%
Nabisco, Inc.
$1,650,000 6.00% 02/15/2001 $ 1,629,095
-----------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
29
<PAGE>
GOLDMAN SACHS CORE FIXED INCOME FUND
Statement of Investments
October 31, 1999
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
<S> <C> <C> <C>
------------------------------------------------------------------------------------------------
Corporate Bonds - (continued)
------------------------------------------------------------------------------------------------
Credit Card Banks - 1.5%
Capital One Bank
$ 600,000 6.66% 02/03/2000 $ 600,090
400,000 6.88 04/24/2000 400,212
800,000 6.58 04/17/2001 798,160
650,000 6.15 06/01/2001 639,931
1,000,000 6.48 01/28/2002 983,330
350,000 6.38 02/15/2003 337,505
Capital One Financial Corp.
355,000 7.25 12/01/2003 346,278
Providian National Bank
705,000 6.65 02/01/2004 677,519
------------
$ 4,783,025
------------------------------------------------------------------------------------------------
Electric - 0.8%
Cal Energy Corp.++
$ 116,825 6.77% 09/15/2003 $ 113,742
Mid American Energy Holdings Corp.
1,000,000 7.23 09/15/2005 989,420
Niagara Mohawk Power Corp.
650,000 6.88 04/01/2003 652,067
400,000 7.38 08/01/2003 401,728
314,000 8.00 06/01/2004 322,808
Salton Sea Funding Corp.
56,550 7.02 05/30/2000 56,644
------------
$ 2,536,409
------------------------------------------------------------------------------------------------
Energy - 1.1%
Norsk Hydro ASA
$ 260,000 7.15% 01/15/2029 $ 232,830
Occidental Petroleum Corp.
505,000 6.50 04/01/2005 487,365
425,000 7.65 02/15/2006 421,851
375,000 7.20 04/01/2028 335,730
The Williams Cos., Inc.
2,030,000 6.13 02/15/2002 1,996,119
------------
$ 3,473,895
------------------------------------------------------------------------------------------------
Finance Companies - 1.8%
Associates Corp. of North America
$ 950,000 5.75% 11/01/2003 $ 914,686
1,000,000 6.00 07/15/2005 950,800
Comdisco, Inc.
3,000,000 6.13 01/15/2003 2,881,620
Household Finance Corp.
900,000 5.88 11/01/2002 872,859
------------
$ 5,619,965
------------------------------------------------------------------------------------------------
Environmental - 1.0%
Republic Services, Inc.
$ 1,545,000 6.63% 05/15/2004 $ 1,413,969
Waste Management, Inc.
1,225,000 6.25 10/15/2000 1,182,725
700,000 6.38 12/01/2003 607,845
------------
$ 3,204,539
------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
<S> <C> <C> <C>
------------------------------------------------------------------------------------------------
Corporate Bonds - (continued)
------------------------------------------------------------------------------------------------
Insurance Companies - 1.2%
American General Finance Corp.
$1,200,000 6.55% 06/24/2002 $ 1,191,540
780,000 5.75 11/01/2003 746,460
Conseco, Inc.
1,190,000 8.50 10/15/2002 1,191,011
MIC Financing Trust I++
360,000 8.38 02/01/2027 330,578
PXRE Capital Trust I
165,000 8.85 02/01/2027 120,775
-----------
$ 3,580,364
----------------------------------------------------------------------------------------------
Media-Cable - 1.4%
Time Warner Entertainment Co.
$2,850,000 9.63% 05/01/2002 $ 3,016,411
Time Warner, Inc.
400,000 7.98 08/15/2004 411,632
1,000,000 6.85 01/15/2026 993,330
-----------
$ 4,421,373
----------------------------------------------------------------------------------------------
Media-Non Cable - 3.3%
CBS Corp.
$ 665,000 6.88% 09/01/2003 $ 656,242
J. Seagram & Sons, Inc.
1,050,000 6.25 12/15/2001 1,034,019
News America Holdings, Inc.
1,000,000 8.63 02/01/2003 1,034,110
1,500,000 8.50 02/15/2005 1,557,570
400,000 8.00 10/17/2016 394,176
600,000 7.13 04/08/2028 525,408
PanAmSat Corp.
2,650,000 6.13 01/15/2005 2,369,497
Viacom, Inc.
2,250,000 6.75 01/15/2003 2,221,448
455,000 7.75 06/01/2005 461,115
-----------
$10,253,585
----------------------------------------------------------------------------------------------
Mortgage Banks - 1.8%
Countrywide Capital Corp. III
$1,080,000 8.05% 06/15/2027 $ 1,032,296
Countrywide Funding Corp.
1,000,000 6.97 03/28/2003 999,720
Countrywide Home Loans, Inc.
400,000 6.45 02/27/2003 393,772
200,000 6.70 03/10/2005 193,724
Homeside Lending, Inc.
1,760,000 6.20 05/15/2003 1,702,378
1,360,000 6.75 08/01/2004 1,331,290
-----------
$ 5,653,180
----------------------------------------------------------------------------------------------
REIT - 1.5%
Developers Diversified Realty Corp.
$1,400,000 6.84% 12/16/2004 $ 1,305,388
Highwoods Properties, Inc.
835,000 6.75 12/01/2003 787,179
----------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
30
<PAGE>
GOLDMAN SACHS CORE FIXED INCOME FUND
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
<S> <C> <C> <C>
Corporate Bonds - (continued)
REIT - (continued)
Liberty Property LP
$ 115,000 7.10% 08/15/2004 $ 109,896
Meditrust Cos.
750,000 7.38 07/15/2000 732,285
390,000 7.82 09/10/2026 345,205
Simon Property Group LP
1,495,000 6.63 06/15/2003 1,436,924
-----------
$ 4,716,877
---------------------------------------------------------------------------------------------
Retailers - 0.6%
Federated Department Stores, Inc.
$ 1,400,000 8.50% 06/15/2003 $ 1,456,140
Sears Roebuck Acceptance Corp.
500,000 6.41 11/19/2002 489,345
-----------
$ 1,945,485
---------------------------------------------------------------------------------------------
Supermarkets - 0.7%
Fred Meyer, Inc.
$ 700,000 7.38% 03/01/2005 $ 692,643
Safeway, Inc.
1,565,000 6.05 11/15/2003 1,504,685
-----------
$ 2,197,328
---------------------------------------------------------------------------------------------
Telecommunications - 4.3%
360 Communications Co.
$ 1,015,000 7.13% 03/01/2003 $ 1,017,943
Metronet Communications Corp.+
1,045,000 0.00/9.95 06/15/2008 812,487
Cable & Wireless Communications PLC
1,360,000 6.38 03/06/2003 1,355,485
MCI Worldcom, Inc.
1,400,000 6.25 08/15/2003 1,370,404
1,125,000 6.40 08/15/2005 1,095,750
450,000 8.88 01/15/2006 473,742
Sprint Capital Corp.
1,440,000 5.88 05/01/2004 1,376,309
400,000 6.88 11/15/2028 361,036
Tele-Communications, Inc.
100,000 7.38 02/15/2000 100,390
Telecom de Puerto Rico+
470,000 6.15 05/15/2002 459,519
590,000 6.65 05/15/2006 559,639
TKR Cable, Inc.
2,195,000 10.50 10/30/2007 2,310,457
US West Capital Funding, Inc.
1,500,000 6.88+ 08/15/2001 1,496,220
600,000 6.88 07/15/2028 528,258
-----------
$13,317,639
---------------------------------------------------------------------------------------------
Tobacco - 1.2%
Philip Morris Cos., Inc.
$ 550,000 8.75% 06/01/2001 $ 562,289
2,250,000 7.13 08/15/2002 2,253,532
---------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
<S> <C> <C> <C>
Corporate Bonds - (continued)
Tobacco - (continued)
R.J. Reynolds Tobacco Holdings, Inc.+
$1,030,000 7.38% 05/15/2003 $ 1,011,254
------------
$ 3,827,075
-----------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS
(Cost $112,772,087) $109,495,846
-----------------------------------------------------------------------------------------------
Agency Debentures - 0.7%
Small Business Administration
$2,397,019 6.30% 06/01/2018 $ 2,273,261
-----------------------------------------------------------------------------------------------
TOTAL AGENCY DEBENTURES
(Cost $2,397,019) $ 2,273,261
-----------------------------------------------------------------------------------------------
Asset-Backed Securities - 9.6%
Auto - 3.2%
Americredit Automobile Receivables Trust Series 1998-A, Class A3
$2,500,000 5.88% 12/05/2003 $ 2,467,188
Chevy Chase Auto Receivables Trust Series 1995-2 Class A
20,915 5.80 06/15/2002 20,869
Olympic Automobile Receivables Trust Series 1994-B, Class A2
38,943 6.85 06/15/2001 38,949
Onyx Acceptance Auto Trust Series 1999-D, Class A4
2,600,000 7.00 11/15/2004 2,599,350
Union Acceptance Corp. Series 1999-A, Class A5#
5,000,000 5.87 09/08/2006 4,887,250
------------
$ 10,013,606
-----------------------------------------------------------------------------------------------
Credit Card - 0.3%
Discover Card Master Trust I Series 1996-4, Class B#
$ 850,000 5.96% 10/16/2013 $ 838,576
-----------------------------------------------------------------------------------------------
Home Equity - 3.0%
Aames Mortgage Trust Series 1998-B, Class A6F
$3,500,000 6.45% 09/15/2028 $ 3,349,360
AFC Home Equity Loan Trust Series 1997-1, Class A#
321,371 5.63 07/25/2027 321,795
First Franklin Mortgage Loan Series 1997-FF3, Class A2
556,826 5.61 11/20/2027 554,058
IMC Home Equity Loan Trust Series 1998-3, Class A8
5,200,000 6.34 08/20/2029 4,995,796
------------
$ 9,221,009
-----------------------------------------------------------------------------------------------
Lease - 1.0%
AESOP Funding II LLC Series 1998-1, Class A+
$3,400,000 6.14% 05/20/2006 $ 3,223,132
-----------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
31
<PAGE>
GOLDMAN SACHS CORE FIXED INCOME FUND
Statement of Investments
October 31, 1999
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
<S> <C> <C> <C>
Asset-Backed Securities - (continued)
Manufactured Housing - 2.1%
Green Tree Financial Corp. Series 1998-6 Class M1
$4,250,000 6.63% 06/01/2030 $ 3,862,187
Mid-State Trust Series 4, Class A
2,671,564 8.33 04/01/2030 2,743,082
-----------
$ 6,605,269
-----------------------------------------------------------------------------------------------
TOTAL ASSET-BACKED SECURITIES
(Cost $31,151,571) $29,901,592
-----------------------------------------------------------------------------------------------
Emerging Market Debt - 1.7%
Korea Electric Power Corp.
$ 760,000 7.75% 04/01/2013 $ 666,642
Pemex Finance Ltd.
200,000 8.02 05/15/2007 180,948
400,000 8.02++ 05/15/2007 361,896
230,000 9.15 11/15/2018 224,951
470,000 9.15++ 11/15/2018 431,391
Republic of Korea
620,000 8.88 04/15/2008 648,427
Republic of Poland#
310,000 4.00 10/27/2024 202,275
1,260,000 5.00 10/27/2014 1,115,100
YPF Sociedad Anonima
70,244 7.00 10/26/2002 69,473
1,264,809 7.50 10/26/2002 1,263,899
-----------------------------------------------------------------------------------------------
TOTAL EMERGING MARKET DEBT
(Cost $5,400,600) $ 5,165,002
-----------------------------------------------------------------------------------------------
Mortgage Backed Obiligations - 42.6%
Federal Home Loan Mortgage Corp. (FHLMC) - 14.7%
$ 148,163 8.00% 08/01/2010 $ 151,452
248,005 6.00 03/01/2014 238,705
1,649,660 6.00 06/01/2014 1,587,798
119,651 7.00 10/01/2017 118,006
401,717 7.50 06/01/2024 404,477
671,403 7.00 10/01/2027 663,641
1,030,389 7.00 06/01/2028 1,012,358
1,887,552 7.00 07/01/2028 1,854,520
676,521 7.00 08/01/2028 664,682
219,857 7.00 11/01/2028 216,009
1,011,941 7.00 12/01/2028 994,232
1,470,388 7.00 01/01/2029 1,444,656
907,817 7.00 04/01/2029 892,167
5,994,409 7.00 09/01/2029 5,891,066
1,998,341 7.00 10/01/2029 1,963,889
6,000,000 7.00 TBA-30 yr* 5,895,000
22,000,000 7.50 TBA-30 yr* 22,045,000
-----------
$46,037,658
-----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
<S> <C> <C> <C>
Mortgage Backed Obiligations - (continued)
Federal National Mortgage Association (FNMA) - 8.3%
$ 69,120 6.50% 02/01/2026 $ 66,592
220,327 6.50 08/01/2026 212,477
157,200 6.50 09/01/2027 150,764
292,595 6.50 10/01/2027 280,616
1,898,656 6.50 11/01/2027 1,819,633
2,225,839 6.50 12/01/2027 2,132,745
730,672 6.50 02/01/2028 700,759
722,260 6.50 04/01/2028 692,012
314,068 6.50 06/01/2028 300,915
1,113,837 6.50 07/01/2028 1,067,269
166,225 6.50 08/01/2028 159,264
987,357 6.50 09/01/2028 946,006
18,000,000 6.50 TBA-30 yr* 17,247,600
-----------
$25,776,652
------------------------------------------------------------------------------------------------
Government National Mortgage Association (GNMA) - 9.0%
$ 176,158 8.00% 02/15/2017 $ 181,166
20,646 7.00 11/15/2022 20,391
791,751 7.00 12/15/2022 781,981
500,643 7.00 01/15/2023 493,929
118,676 7.00 03/15/2023 117,119
718,674 7.00 04/15/2023 709,691
1,629,611 7.00 05/15/2023 1,609,240
57,903 7.00 06/15/2023 57,180
1,613,252 7.00 07/15/2023 1,591,963
849,875 7.00 08/15/2023 839,251
2,047,932 7.00 10/15/2023 2,018,733
30,761 7.00 11/15/2023 30,376
956,617 7.00 12/15/2023 942,206
272,006 6.50 06/15/2028 259,935
286,895 6.50 09/15/2028 274,163
2,966,198 6.50 10/15/2028 2,836,068
8,916,302 6.50 11/15/2028 8,525,855
2,466,905 6.50 01/15/2029 2,357,688
2,110,724 6.50 02/15/2029 2,017,313
490,193 6.50 04/15/2029 468,438
755,382 7.00 04/15/2029 740,747
750,481 7.00 05/15/2029 735,940
163,839 6.50 07/15/2029 156,568
249,520 7.00 08/15/2029 244,761
244,618 7.00 10/15/2029 239,878
-----------
$28,250,580
------------------------------------------------------------------------------------------------
Collateralized Mortgage Obligations - 10.6%
Remic Trust Floater# - 1.3%
FNMA Series 1993-138, Class SM
$ 3,000,000 9.62% 12/25/2021 $ 3,047,940
Prudential Home Mortgage Securities Co. Series 1992-99, Class A5
1,000,000 7.87 12/25/2007 1,007,360
-----------
$ 4,055,300
------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
32
<PAGE>
GOLDMAN SACHS CORE FIXED INCOME FUND
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
<S> <C> <C> <C>
Mortgage Backed Obligations - (continued)
IOette. - 0.1%
FNMA Series 1992-24, Class N
$ 15,722 15.04% 03/25/2007 $ 252,813
-----------------------------------------------------------------------------------------------
Non-Agency CMOs - 6.5%
Asset Securitization Corp. Series 1997-D4, Class A1D
$ 900,000 7.49% 04/14/2029 $ 913,374
Chase Commercial Mortgage Securities Corp. Series 1997-2 Class A2
3,100,000 6.60 11/19/2007 2,983,998
Chase Commercial Mortgage Securities Corp. Series 1998-1, Class A2
3,000,000 6.56 05/18/2008 2,870,400
Commercial Mortgage Acceptance Corp. Series 1998-C1, Class A2
2,200,000 6.49 05/15/2008 2,106,390
Commercial Mortgage Asset Trust Series 1999-C1, Class A3
400,000 6.64 09/17/2010 378,220
CS First Boston Mortgage Sercurities Corp. Series 1997-C2, Class A3
3,250,000 6.55 11/17/2007 3,087,143
First Union-Lehman Brothers Commercial Mortgage Services Series 1997-C1,
Class A2
600,000 7.30 12/18/2006 600,462
First Union-Lehman Brothers Commercial Mortgage Services Series 1997-C2,
Class A2
1,000,000 6.60 05/18/2007 969,030
JP Morgan Commercial Mortgage Finance Corp. Series 1999-C8, Class A2
3,000,000 7.40 07/15/2031 2,983,301
Merrill Lynch Mortgage Investors, Inc. Series 1998-C2 Class A2
3,690,000 6.39 02/15/2030 3,498,858
------------
$ 20,391,176
-----------------------------------------------------------------------------------------------
Planned Amortization Class (PAC) CMOs - 1.5%
FHLMC Series 16, Class PG
$1,000,000 6.35% 03/25/2018 $ 996,560
FHLMC Series 2055, Class OD
2,000,000 6.00 01/15/2012 1,906,860
FHLMC Series 2149, Class TF
1,250,000 6.50 05/15/2024 1,199,637
FNMA Remic Trust Series G93-31, Class PJ
750,000 6.55 10/25/2020 740,243
------------
$ 4,843,300
-----------------------------------------------------------------------------------------------
Sequential Fixed Rate CMOs - 1.2%
Collateralized Mortgage Obligation Trust Series 1963, Class Z
$ 670,805 9.00% 10/20/2020 $ 695,537
Residential Asset Securitization Trust Series 1997-A3, Class A4
3,000,000 7.75 05/25/2027 3,001,860
------------
$3,697,397
-----------------------------------------------------------------------------------------------
TOTAL COLLATERALIZED MORTGAGE
OBLIGATIONS $ 33,239,986
-----------------------------------------------------------------------------------------------
TOTAL MORTGAGE BACKED OBLIGATIONS
(Cost $135,222,088) $133,304,876
-----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
<S> <C> <C> <C>
Sovereign Credit - 1.3%
Province of Quebec
$2,185,000 7.50% 07/15/2023 $ 2,182,706
320,000 5.74# 03/02/2026 318,089
Province of Saskatchewan
275,000 8.50 07/15/2022 301,598
State of Israel&
6,000,000 6.66 05/15/2023 1,255,020
-----------------------------------------------------------------------------------------------
TOTAL SOVEREIGN CREDIT
(Cost $4,410,837) $4,057,413
-----------------------------------------------------------------------------------------------
U.S. Treasury Obligations - 4.2%
United States Treasury Interest-Only Stripped Securities.
$5,600,000 6.49% 05/15/2008 $ 3,270,344
2,000,000 6.33 08/15/2008 1,148,740
United States Treasury Principal-Only Stripped Securities&
4,550,000@ 6.59 05/15/2017 1,451,951
4,900,000 6.59 05/15/2018 1,465,051
4,000,000 6.34 08/15/2025 795,840
6,500,000 6.33 08/15/2026 1,222,780
United States Treasury Note
3,000,000 6.63 07/31/2001 3,039,840
United States Treasury Bond
500,000 7.88 02/15/2021 578,280
-----------------------------------------------------------------------------------------------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $13,102,902) $12,972,826
-----------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
33
<PAGE>
GOLDMAN SACHS CORE FIXED INCOME FUND
Statement of Investments
October 31, 1999
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
<S> <C> <C> <C>
Repurchase Agreement - 15.9%
Joint Repurchase Agreement Account
$49,700,000 5.33% 11/01/1999 $ 49,700,000
------------------------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENT
(Cost $49,700,000) $ 49,700,000
------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS
(Cost $354,157,104) $346,870,816
------------------------------------------------------------------------------------------------
</TABLE>
++ Securities are exempt from registration under Rule 144A of the Securities
Act of 1933. Such securities may be resold, normally to qualified
institutional buyers in transactions exempt from registration. Total market
value of Rule 144A securities amounted to $9,990,556 as of October 31,
1999.
# Variable rate security. Coupon rate disclosed is that which is in effect at
October 31, 1999.
* TBA (To Be Assigned) securities are purchased on a forward commitment basis
with an approximate (generally +/ -2.5%) principal amount and no definite
maturity date. The actual principal amount and maturity date will be
determined upon settlement when the specific mortgage pools are assigned.
. Represents security with notional or nominal principal amount. The actual
effective yield of this security is different than the stated coupon due to
amortization of related premiums.
+ These securities are issued with a zero coupon which increases to the
stated rate at a set date in the future.
& This security is issued with a zero coupon. The interest rate disclosed for
this security represents effective yield to maturity.
@ A portion of this security is segregated as collateral for initial margin
requirement on futures transactions.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of net assets.
The accompanying notes are an integral part of these financial statements.
34
<PAGE>
GOLDMAN SACHS GLOBAL INCOME FUND
Statement of Investments
October 31, 1999
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount! Rate Date Value
<S> <C> <C> <C>
Foreign Debt Obligations - 63.8%
Australian Dollar - 0.4%
Government of Australia
AUD 3,100,000 8.75% 08/15/2008 $ 2,250,767
---------------------------------------------------------------------------------------------
British Pound Sterling - 10.3%
Abbey National Treasury
GBP 4,000,000 8.00% 04/02/2003 $ 6,751,603
Bank Nederlandse Gemeenten
2,500,000 6.38 03/30/2005 4,043,806
Lehman Brothers Holdings PLC
2,900,000 6.95 06/22/2004 4,570,854
Lloyds Bank PLC
2,900,000 7.75 06/18/2007 4,948,211
North American Capital Corp.
1,300,000 8.25 11/17/2003 2,156,617
United Kingdom Treasury
23,574,000 5.00 06/07/2004 37,162,124
------------
$ 59,633,215
---------------------------------------------------------------------------------------------
Danish Krone - 1.9%
Kingdom of Denmark
DKK69,000,000 8.00% 05/15/2003 $ 10,733,348
---------------------------------------------------------------------------------------------
Euro Currency - 24.7%
Federal Republic of Germany
EUR 5,000,000 3.00% 06/15/2001 $ 5,196,228
23,000,000 4.50 08/19/2002 24,323,768
9,500,000 5.25 01/04/2008 10,101,593
6,000,000 6.25 01/04/2024 6,670,548
General Motors Acceptance Corp.++
4,800,000 5.00 01/18/2005 5,036,762
Government of France
19,000,000 4.50 07/12/2003 19,909,164
14,600,000 8.50 04/25/2023 20,511,174
Republic of Italy
32,200,000 4.00 07/15/2004 32,673,971
14,600,000 6.50 11/01/2027 16,296,089
Tecnost International NV
2,200,000 5.38 07/30/2004 2,273,030
------------
$142,992,327
---------------------------------------------------------------------------------------------
German Mark - 3.4%
Baden Wuerttemberg Finance
DEM10,000,000 5.38% 02/05/2010 $ 5,255,797
Citicorp
4,500,000 6.25 09/19/2009 2,474,563
1,100,000 5.50 06/30/2010 569,576
Gallaher Group
10,300,000 5.88 08/06/2008 5,257,848
Halifax Group PLC
5,000,000 5.63 07/23/2007 2,694,427
---------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount! Rate Date Value
<S> <C> <C> <C>
Foreign Debt Obligations - (continued)
German Mark - (continued)
Merrill Lynch Co., Inc.
DEM 2,500,000 5.38% 01/04/2009 $ 1,279,969
Royal Bank of Scotland PLC
3,700,000 5.25 07/22/2008 1,876,048
------------
$ 19,408,228
-------------------------------------------------------------------------------------------
Japanese Yen - 19.7%
Asian Development Bank
JPY1,300,000,000 5.63% 02/18/2002 $ 13,992,523
European Investment Bank
700,000,000 2.13 09/20/2007 6,976,396
Federal National Mortgage Assn.
650,000,000 2.13 10/09/2007 6,455,116
Government of Japan
7,960,000,000 0.90 12/22/2008 70,014,484
International Bank for Reconstruction & Development
400,000,000 4.50 06/20/2000 3,944,217
350,000,000 5.25 03/20/2002 3,756,114
Republic of Italy
550,000,000 5.13 07/29/2003 6,151,339
200,000,000 3.80 03/27/2008 2,217,048
------------
$113,507,237
-------------------------------------------------------------------------------------------
New Zealand Dollar - 1.7%
Government of New Zealand
NZD 17,900,000 8.00% 11/15/2006 $ 9,575,618
-------------------------------------------------------------------------------------------
Swedish Krona - 1.7%
Stadshypotek AB
SEK 85,000,000 5.00% 12/17/2003 $ 9,873,808
-------------------------------------------------------------------------------------------
TOTAL FOREIGN DEBT OBLIGATIONS
(Cost $370,630,402) $367,974,548
-------------------------------------------------------------------------------------------
Asset-Backed Securities - 2.7%
Auto - 0.7%
ALAC Automobile Receivables Trust Series 1997-1, Class A++
USD 133,142 6.29% 12/15/2002 $ 132,508
Americredit Automobile Receivables Trust Series 1997-D, Class A3
450,000 6.24 09/05/2003 446,089
Arcadia Automobile Receivables Series 1997-D, Class A4
950,000 6.35 11/15/2005 942,819
Arcadia Automobile Receivables Series 1998-C, Class A3
1,000,000 5.67 08/15/2006 980,156
Arcadia Automobile Receivables Series 1999-C, Class A3
1,500,000 7.20 06/15/2007 1,513,594
------------
$ 4,015,166
-------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
36
<PAGE>
GOLDMAN SACHS GLOBAL INCOME FUND
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount! Rate Date Value
<S> <C> <C> <C>
Asset-Backed Securities - (continued)
Credit Card - 0.4%
Citibank Credit Card Master Trust I Series 1998-3, Class A
USD 1,000,000 5.80% 02/07/2005 $ 974,370
Fingerhut Master Trust Series 1998-2, Class A
1,000,000 6.23 02/15/2007 982,970
------------
$ 1,957,340
---------------------------------------------------------------------------------------------
Home Equity - 0.8%
AFC Home Equity Loan Trust Series 1997-1, Class A#
USD 438,233 5.63% 03/25/2027 $ 438,812
American Business Financial Services Series 1998-2, Class A6
2,250,000 6.46 09/25/2029 2,157,187
BankBoston Home Equity Loan Trust Series 1998-2, Class A7
1,750,000 6.14 06/25/2013 1,623,825
UCFC Home Equity Loan Trust Series 1997-D, Class A8#
494,427 5.66 12/15/2027 490,348
------------
$ 4,710,172
---------------------------------------------------------------------------------------------
Lease - 0.3%
AESOP Funding II LLC Series 1998-1, Class A+
USD 1,000,000 6.14% 05/20/2006 $ 947,980
First Sierra Receivables Series 1998-1, Class A4
900,000 5.63 08/12/2004 875,142
------------
$ 1,823,122
---------------------------------------------------------------------------------------------
Manufactured Housing - 0.2%
Mid-State Trust Series 4, Class A
USD 1,187,362 8.33% 04/01/2030 $ 1,219,148
---------------------------------------------------------------------------------------------
Student Loans - 0.3%
Union Financial Services Series 1998-A, Class A9
USD 2,000,000 5.73% 12/01/2005 $ 1,955,480
---------------------------------------------------------------------------------------------
TOTAL ASSET-BACKED SECURITIES
(Cost $16,105,034) $ 15,680,428
---------------------------------------------------------------------------------------------
Corporate Bonds - 15.5%
Aerospace/Defense - 0.1%
Raytheon Co.
USD 85,000 6.30% 08/15/2000 $ 84,833
310,000 5.70 11/01/2003 292,417
------------
$ 377,250
---------------------------------------------------------------------------------------------
Airlines - 0.2%
Continental Airlines, Inc.
USD 288,876 6.54% 09/15/2009 $ 277,526
Northwest Airlines, Inc.
268,423 7.67 01/02/2015 266,609
236,855 8.97 01/02/2015 239,356
U.S. Airways
250,000 6.82 07/30/2014 214,995
------------
$ 998,486
---------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount! Rate Date Value
<S> <C> <C> <C>
Corporate Bonds - (continued)
Automotive - 1.6%
Chrysler Financial Corp.
USD 445,000 6.09% 04/06/2001 $ 443,220
Ford Motor Credit Co.
5,000,000 6.13 04/28/2003 4,884,450
General Motors Acceptance Corp.
2,500,000 5.50 01/14/2002 2,439,400
770,000 5.75 11/10/2003 739,839
The Hertz Corp.
485,000 6.70 06/15/2002 482,992
250,000 6.00 01/15/2003 243,120
-----------
$ 9,233,021
------------------------------------------------------------------------------------------------
Automotive Parts - 0.5%
The Pep Boys-Manny, Moe & Jack
USD 480,000 6.75% 03/10/2004 $ 442,382
TRW, Inc.+
375,000 6.63 06/01/2004 363,839
2,000,000 7.13 06/01/2009 1,942,200
-----------
$ 2,748,421
------------------------------------------------------------------------------------------------
Banks - 1.9%
Banque et Case D E'sparge&
USD3,000,000 6.20% 01/21/2000 $ 2,944,544
Bayerische Landesbank Girozentrale
250,000 5.88 12/01/2008 228,135
Merita Bank Ltd.
200,000 6.50 04/01/2009 184,526
National Westminster Bank PLC
7,500,000 7.38 10/01/2009 7,440,075
-----------
$10,797,280
------------------------------------------------------------------------------------------------
Building Materials - 0.1%
Owens Corning
USD 375,000 7.50% 05/01/2005 $ 361,151
------------------------------------------------------------------------------------------------
Commercial Banks - 3.5%
Bank of America Corp.
USD 320,000 7.75% 07/15/2002 $ 327,542
300,000 9.20 05/15/2003 321,749
2,000,000 6.63 06/15/2004 1,979,460
200,000 6.38 05/15/2005 193,936
150,000 7.25 10/15/2025 140,240
Citicorp
300,000 8.00 02/01/2003 310,026
DBS Group Holdings Ltd.
4,000,000 7.88 08/10/2009 4,069,600
Deutsche Bank&
6,000,000 6.20 01/20/2000 5,890,052
Dime Bancorp, Inc.
215,000 6.38 01/30/2001 213,080
First Union Corp.
200,000 7.10 08/15/2004 200,852
------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
37
<PAGE>
GOLDMAN SACHS GLOBAL INCOME FUND
Statement of Investments
October 31, 1999
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount! Rate Date Value
<S> <C> <C> <C>
Corporate Bonds - (continued)
Commercial Banks - (continued)
Long Island Savings Bank
USD 300,000 7.00% 06/13/2002 $ 296,631
Rabobank Nederland&
6,000,000 6.20 01/20/2000 5,890,052
The Money Store, Inc.
225,000 7.30 12/01/2002 227,216
Wells Fargo & Co.
360,000 6.63 07/15/2004 356,944
------------
$ 20,417,380
---------------------------------------------------------------------------------------------
Conglomerates - 0.6%
Tyco International Group SA
USD 385,000 5.88% 11/01/2004 $ 362,516
190,000 6.38 06/15/2005 181,414
3,000,000 6.13 11/01/2008 2,728,050
------------
$ 3,271,980
---------------------------------------------------------------------------------------------
Consumer Cyclicals - 0.0%
Cendant Corp.
USD 310,000 7.50% 12/01/2000 $ 310,701
---------------------------------------------------------------------------------------------
Consumer Non-Durables - 0.0%
AMETEK, Inc.
USD 130,000 7.20% 07/15/2008 $ 118,368
---------------------------------------------------------------------------------------------
Consumer Products - 0.1%
Nabisco, Inc.#
USD 700,000 6.00% 02/15/2001 $ 691,131
---------------------------------------------------------------------------------------------
Credit Card Banks - 0.1%
Capital One Bank
USD 275,000 6.39% 03/05/2001 $ 273,889
250,000 6.48 01/28/2002 245,832
180,000 6.48 06/28/2002 175,653
Providian National Bank
250,000 6.65 02/01/2004 240,255
------------
$ 935,629
---------------------------------------------------------------------------------------------
Electric - 0.1%
Mid American Energy Holdings Corp.
USD 180,000 7.23% 09/15/2005 $ 178,096
Niagara Mohawk Power Corp.
250,000 6.88 04/01/2003 250,795
275,000 8.00 06/01/2004 282,714
Salton Sea Funding Corp.
71,663 7.02 05/30/2000 71,782
------------
$ 783,387
---------------------------------------------------------------------------------------------
Energy - 0.7%
Conoco, Inc.
USD 3,100,000 5.90% 04/15/2004 $ 2,984,308
Norsk Hydro ASA
60,000 7.15 01/15/2029 53,717
---------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount! Rate Date Value
<S> <C> <C> <C>
Corporate Bonds - (continued)
Energy - (continued)
Occidental Petroleum Corp.
USD 115,000 6.50% 04/01/2005 $ 110,984
75,000 7.65 02/15/2006 74,445
90,000 7.20 04/01/2028 80,575
Oryx Energy Co.
155,000 9.50 11/01/1999 155,029
The Williams Cos., Inc.
200,000 6.13 02/01/2001 198,564
390,000 6.13 02/15/2012 383,491
------------
$ 4,041,113
---------------------------------------------------------------------------------------------
Finance Companies - 2.1%
Associates Corp. of North America
USD 750,000 5.75% 11/01/2003 $ 722,121
Beneficial Corp.
500,000 6.43 04/10/2002 496,625
Comdisco, Inc.
450,000 6.13 01/15/2003 432,243
Household Financial Corp.
6,000,000 6.00 05/01/2004 5,750,340
MEPC Finance, Inc.
1,500,000 7.50 05/01/2003 1,515,225
Merrill Lynch Co., Inc.
3,400,000 6.00 02/12/2003 3,328,056
------------
$ 12,244,610
---------------------------------------------------------------------------------------------
Environmental - 0.1%
Republic Services, Inc.
USD 430,000 6.63% 05/15/2004 $ 393,532
---------------------------------------------------------------------------------------------
Insurance Companies - 0.7%
American General Finance Corp.
USD 490,000 5.75% 11/01/2003 $ 468,930
Conseco, Inc.
225,000 8.50 10/15/2002 225,191
Prudential Insurance Company of America
3,500,000 6.38 07/23/2006 3,301,900
------------
$ 3,996,021
---------------------------------------------------------------------------------------------
Media-Cable - 0.3%
Time Warner Entertainment Co.
USD 900,000 9.63% 05/01/2002 $ 952,551
Time Warner, Inc.
450,000 7.95 02/01/2000 452,011
250,000 6.85 01/15/2026 248,333
------------
$ 1,652,895
---------------------------------------------------------------------------------------------
Media-Non Cable - 0.4%
CBS Corp.
USD 170,000 6.88% 09/01/2003 $ 167,761
J. Seagram & Sons, Inc.
175,000 6.25 12/15/2001 172,336
---------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
38
<PAGE>
GOLDMAN SACHS GLOBAL INCOME FUND
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount! Rate Date Value
<S> <C> <C> <C>
Corporate Bonds - (continued)
Media-Non Cable - (continued)
News America Holdings, Inc.
USD 400,000 8.50% 02/15/2005 $ 415,352
65,000 8.00 10/17/2016 64,054
200,000 7.43 10/01/2026 195,854
100,000 7.13 04/08/2028 87,568
PanAmSat Corp.
755,000 6.13 01/15/2005 675,083
Paramount Communications, Inc.
300,000 7.50 01/15/2002 303,075
Viacom, Inc.
450,000 7.75 06/01/2005 456,048
------------
$ 2,537,131
------------------------------------------------------------------------------------------
Mortgage Banks - 0.2%
Countrywide Home Loans, Inc.
USD 450,000 6.45% 02/27/2003 $ 442,994
200,000 6.84 10/22/2004 197,586
Homeside Lending, Inc.
400,000 6.20 05/15/2003 386,904
------------
$ 1,027,484
------------------------------------------------------------------------------------------
REIT - 0.2%
Chelsea GCA Realty, Inc.
USD 250,000 7.75% 01/26/2001 $ 249,407
Developers Diversified Realty Corp.
125,000 6.84 12/16/2004 116,553
Liberty Property LP
235,000 6.97 12/11/2003 223,466
Simon Property Group LP
450,000 6.63 06/15/2003 432,519
------------
$ 1,021,945
------------------------------------------------------------------------------------------
Retailers - 0.1%
Federated Department Stores, Inc.
USD 350,000 8.13% 10/15/2002 $ 359,576
Sears Roebuck Acceptance Corp.
240,000 6.72 09/17/2003 235,637
------------
$ 595,213
------------------------------------------------------------------------------------------
Supermarkets - 0.1%
Safeway, Inc.
USD 315,000 5.88% 11/15/2001 $ 309,006
170,000 6.05 11/15/2003 163,448
------------
$ 472,454
------------------------------------------------------------------------------------------
Telecommunications - 0.6%
360 Communications Co.
USD 300,000 7.13% 03/01/2003 $ 300,870
Metronet Communications Corp.+
240,000 0.00/9.95 06/15/2008 186,600
Cable & Wireless Communications PLC
565,000 6.38 03/06/2003 563,124
------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount! Rate Date Value
<S> <C> <C> <C>
Corporate Bonds - (continued)
Telecommunications - (continued)
MCI Worldcom, Inc.
USD 405,000 6.13% 08/15/2001 $ 401,671
380,000 6.40 08/15/2005 370,120
Sprint Capital Corp.
350,000 5.70 11/15/2003 335,171
Tele-Communications, Inc.
280,000 8.25 01/15/2003 291,575
Telecom de Puerto Rico++
135,000 6.15 05/15/2002 131,989
155,000 6.65 05/15/2006 147,024
TKR Cable, Inc.
220,000 10.50 10/30/2007 231,572
US West Capital Funding, Inc.++
400,000 6.88 08/15/2001 398,992
150,000 6.88 07/15/2028 132,064
-----------
$ 3,490,772
--------------------------------------------------------------------------------------------
Tobacco - 1.2%
Imperial Tobacco Overseas BV
USD 2,800,000 7.13% 04/01/2009 $ 2,567,880
Netherlands Holdings BV
3,300,000 6.50 05/06/2003 3,189,780
Philip Morris Cos., Inc.
180,000 9.00 01/01/2001 183,587
100,000 8.75 06/01/2001 102,234
350,000 7.00 07/15/2005 336,091
95,000 6.95 06/01/2006 95,143
R.J. Reynolds Tobacco Holdings, Inc.++
285,000 7.38 05/15/2003 279,813
-----------
$ 6,754,528
--------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS
(Cost $91,777,197) $89,271,883
--------------------------------------------------------------------------------------------
Mortgage Backed Obligations - 4.3%
Federal Home Loan Mortgage Corp. (FHLMC) - 0.2%
USD 982,211 6.00% 06/01/2014 $ 945,378
--------------------------------------------------------------------------------------------
Government National Mortgage Association (GNMA) - 1.5%
USD 77,175 9.00% 03/15/2005 $ 79,828
106,848 9.00 02/15/2006 110,588
381,748 9.00 02/15/2010 395,586
724,056 6.00 01/15/2011 704,144
534,292 7.00 07/15/2023 527,614
552,620 7.00 08/15/2023 545,712
294,520 7.00 09/15/2023 290,839
402,062 7.00 10/15/2023 397,037
219,047 7.00 11/15/2023 216,309
1,473,702 6.00 11/15/2028 1,367,772
--------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
39
<PAGE>
GOLDMAN SACHS GLOBAL INCOME FUND
Statement of Investments
October 31, 1999
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount! Rate Date Value
<S> <C> <C> <C>
Mortgage Backed Obligations - (continued)
Government National Mortgage Association (GNMA) - (continued)
USD 3,357,236 6.00% 12/15/2028 $ 3,115,918
27,362 6.50 01/15/2029 26,160
398,804 6.50 04/15/2029 381,290
571,148 6.50 06/15/2029 546,065
------------
$ 8,704,862
---------------------------------------------------------------------------------------------
Collateralized Mortgage Obligations - 2.6%
Inverse Floater# - 0.3%
FNMA Remic Trust Series 1993-164, Class SD
USD 500,000 7.07% 09/25/2008 $ 466,810
FNMA Remic Trust Series 1994-13, Class SH
962,660 6.58 02/25/2009 873,008
GE Capital Mortgage Services Series 1994-2, Class A9
564,879 5.25 01/25/2009 515,853
------------
$ 1,855,671
---------------------------------------------------------------------------------------------
Non-Agency CMOs - 1.0%
Asset Securitization Corp. Series 1997-D5, Class A1B
USD 450,000 6.66% 02/14/2041 $ 439,430
Chase Commercial Mortgage Securities Corp. Series 1997-1, Class A2
300,000 7.37 02/19/2007 301,623
Chase Commercial Mortgage Securities Corp. Series 1997-2 Class A2
2,300,000 6.60 11/19/2007 2,213,934
Commercial Mortgage Asset Trust Series 1999-C1, Class A3
250,000 6.64 09/17/2010 236,388
First Union Commercial Mortgage Trust Series 1999-C1, Class A2
1,500,000 6.07 10/15/2008 1,381,957
First Union-Lehman Brothers Commercial Mortgage
Services Series 1997-C1, Class A2
200,000 7.30 12/18/2006 200,154
GMAC Commercial Mortgage Securities, Inc. Series 1997-C1, Class A2
450,000 6.85 09/15/2006 444,280
Merrill Lynch Mortgage Investors, Inc. Series 1998-C2 Class A2
750,000 6.39 02/15/2030 711,150
------------
$ 5,928,916
---------------------------------------------------------------------------------------------
Planned Amortization Class (PAC) CMOs - 0.4%
CMC Securities Corp. IV Series 1997-2, Class IA13
USD 416,628 6.60% 11/25/2027 $ 415,066
Structured Mortgage Securities Corp. Series 1994-1, Class A1
2,000,000 6.58 05/25/2009 1,987,760
------------
$ 2,402,826
---------------------------------------------------------------------------------------------
Regular Floater CMOs# - 0.2%
GE Capital Mortgage Services Series 1994-2, Class A8
USD 968,367 6.44% 01/25/2009 $ 992,576
---------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Principal Maturity
Amount! Interest Rate Date Value
<S> <C> <C> <C>
Mortgage Backed Obligations - (continued)
Sequential Fixed Rate CMOs - 0.5%
FHLMC Series 2152, Class AB
USD 2,922,230 6.25% 01/15/2026 $ 2,795,814
-------------------------------------------------------------------------------
Target Amortization Class (TAC) - 0.2%
Countrywide Funding Corp. Series 1994-2, Class A10A
USD 1,000,000 6.50% 02/25/2009 $ 983,750
-------------------------------------------------------------------------------
TOTAL COLLATERALIZED MORTGAGE
OBLIGATIONS $14,959,553
-------------------------------------------------------------------------------
TOTAL MORTGAGE BACKED OBLIGATIONS
(Cost $25,417,687) $24,609,793
-------------------------------------------------------------------------------
Sovereign Credit - 0.1%
Province of Quebec
USD 585,000 7.50% 07/15/2023 $ 584,386
80,000 5.74# 03/02/2026 79,522
Province of Saskatchewan
65,000 8.50 07/15/2022 71,287
-------------------------------------------------------------------------------
TOTAL SOVEREIGN CREDIT
(Cost $779,204) $ 735,195
-------------------------------------------------------------------------------
U.S. Treasury Obligations - 9.2%
United States Treasury Interest-Only Stripped Securities.
USD 400,000 6.56% 02/15/2014 $ 157,736
United States Treasury Principal-Only Stripped Securities&
3,000,000 6.59 05/15/2017 957,330
4,100,000 6.59 11/15/2018 1,186,581
1,600,000 6.58 02/15/2019 456,000
8,660,000@ 6.57 05/15/2020 2,286,586
3,200,000 6.33 08/15/2026 601,984
United States Treasury Note
12,000,000 7.00 07/15/2006 12,536,280
United States Inflation-Indexed Treasury Note
5,789,056 3.63 01/15/2008 5,584,645
United States Treasury Bonds
3,000,000 11.25 02/15/2015 4,379,520
11,200,000 6.75 08/15/2026 11,676,000
14,000,000 6.13 11/15/2027 13,534,080
-------------------------------------------------------------------------------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $54,056,503) $53,356,742
-------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
40
<PAGE>
GOLDMAN SACHS GLOBAL INCOME FUND
<TABLE>
<CAPTION>
Principal
Amount! Interest Rate Maturity Date Value
<S> <C> <C> <C>
Short-Term Obligation - 1.6%
State Street Bank & Trust Euro-Time Deposit
USD 9,295,000 5.25% 11/01/1999 $ 9,295,000
-------------------------------------------------------------------------------------------
TOTAL SHORT-TERM OBLIGATION
(Cost $9,295,000) $ 9,295,000
-------------------------------------------------------------------------------------------
TOTAL INVESTMENTS
(Cost $568,061,027) $560,923,589
-------------------------------------------------------------------------------------------
</TABLE>
! The principal amount of each security is stated in the currency in which the
bond is denominated. See below.
AUD=Australian Dollar
DKK=Danish Krone
DEM=German Mark
EUR=Euro Currency
GBP=Great British Pound
JPY=Japanese Yen
NZD=New Zealand Dollar
SEK=Swedish Krona
USD=United States Dollar
++ Securities are exempt from registration under Rule 144A of the Securities
Act of 1933. Such securities may be resold, normally to qualified
institutional buyers in transactions exempt from registration. Total market
value of Rule 144A securities amounted to $9,513,171 as of October 31,
1999.
# Variable rate security. Coupon rate disclosed is that which is in effect at
October 31, 1999.
+ These securities are issued with a zero coupon rate which increases to the
stated rate at a set date in the future.
.. Represents security with notional or nominal amount. The actual effective
yield of this security is different than the stated coupon due to the
amortization of related premiums.
& Security is issued with a zero coupon. The interest rate disclosed for
this security represents effective yield to maturity.
@ A portion of this security is segregated as collateral for initial margin
requirement on futures transactions.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of net assets.
The accompanying notes are an integral part of these financial statements.
41
<PAGE>
GOLDMAN SACHS TAXABLE INVESTMENT GRADE FUNDS
Statements of Assets and Liabilities
October 31, 1999
<TABLE>
<CAPTION>
Adjustable Rate
Government Fund
Assets:
<S> <C>
Investment in securities, at value (identified cost
$342,432,281, $240,315,960, $135,979,513, $354,157,104,
and $568,061,027, respectively) $337,130,510
Cash, at value --
Receivables:
Investment securities sold, at value 1,459,569
Interest, at value 2,309,456
Fund shares sold 353,723
Forward foreign currency exchange contracts, at value --
Variation margin --
Reimbursement from adviser 17,802
Other assets 8,393
---------------------------------------------------------------------------
Total assets 341,279,453
---------------------------------------------------------------------------
Liabilities:
Due to bank 104,446
Payables:
Investment securities purchased --
Income distribution --
Fund shares repurchased 2,074,129
Amounts owed to affiliates 136,283
Forward foreign currency exchange contracts, at value --
Variation margin 233,943
Accrued expenses and other liabilities, at value 47,853
---------------------------------------------------------------------------
Total liabilities 2,596,654
---------------------------------------------------------------------------
Net Assets:
Paid-in capital 394,041,939
Accumulated undistributed net investment income --
Accumulated net realized loss on investment, futures and
foreign currency related transactions (49,853,742)
Net unrealized loss on investments, futures and
translation of assets and liabilities denominated in
foreign currencies (5,505,398)
---------------------------------------------------------------------------
NET ASSETS $338,682,799
---------------------------------------------------------------------------
Net asset value, offering and redemption price per
share(a)
Class A $9.63
Class B --
Class C --
Institutional $9.64
Service $9.65
---------------------------------------------------------------------------
Shares outstanding:
Class A 2,373,858
Class B --
Class C --
Institutional 32,666,147
Service 82,551
---------------------------------------------------------------------------
Total shares outstanding, $.001 par value (unlimited
number of shares authorized) 35,122,556
---------------------------------------------------------------------------
</TABLE>
(a) Maximum public offering price per share (NAV per share multiplied by
1.0152) for Class A shares of Adjustable Rate Government, (NAV per share
multiplied by $1.02041) for Class A shares of Short Duration Government,
and (NAV per share multiplied by 1.0471) for Class A shares of Government
Income, Core Fixed Income, and Global Income is $9.78, $9.77, $14.35,
$9.95, and $15.17, respectively. At redemption, Class B and Class C
shares may be subject to a contingent sales charge, assessed on the
amount equal to the lesser of the current net asset value or the original
purchase price of the shares.
The accompanying notes are an integral part of these financial statements.
42
<PAGE>
GOLDMAN SACHS TAXABLE INVESTMENT GRADE FUNDS
<TABLE>
<CAPTION>
Short Duration Government Core Fixed Global
Government Fund Income Fund Income Fund Income Fund
<S> <C> <C> <C>
$237,089,108 $133,092,805 $346,870,816 $560,923,589
-- 63,390 53,559 930
1,937,032 1,487,410 17,161,242 28,931,845
1,607,023 772,448 3,324,271 9,718,563
324,655 134,222 1,553,692 1,761,204
-- -- -- 6,161,908
-- 26,721 304,108 756,121
24,062 30,990 25,145 105,938
9,260 10,427 71,809 20,116
-------------------------------------------------------------------------------------
240,991,140 135,618,413 369,364,642 608,380,214
-------------------------------------------------------------------------------------
2,035 -- -- --
18,643,284 15,994,998 55,605,182 21,482,035
305,639 68,843 493,247 --
2,746,824 1,639,593 359,494 1,177,436
132,068 116,985 158,153 511,794
-- -- 61,842 7,917,291
239,047 -- -- --
54,256 45,180 76,855 213,202
-------------------------------------------------------------------------------------
22,123,153 17,865,599 56,754,773 31,301,758
-------------------------------------------------------------------------------------
238,577,947 123,070,464 326,748,909 588,755,245
615,596 49,258 122,700 2,395,515
(16,419,016) (2,436,452) (6,870,617) (5,583,499)
(3,906,540) (2,930,456) (7,391,123) (8,488,805)
-------------------------------------------------------------------------------------
$218,867,987 $117,752,814 $312,609,869 $577,078,456
-------------------------------------------------------------------------------------
$9.57 $13.70 $9.50 $14.49
$9.56 $13.72 $9.52 $14.45
$9.54 $13.71 $9.52 $14.43
$9.57 $13.69 $9.52 $14.48
$9.56 $13.63 $9.52 $14.47
-------------------------------------------------------------------------------------
5,457,522 5,990,696 6,884,002 18,763,477
726,082 1,435,163 1,539,179 1,157,040
736,877 733,457 781,565 539,441
15,270,025 430,809 22,796,484 19,314,962
691,130 1,108 858,321 77,059
-------------------------------------------------------------------------------------
22,881,636 8,591,233 32,859,551 39,851,979
-------------------------------------------------------------------------------------
</TABLE>
43
<PAGE>
GOLDMAN SACHS TAXABLE INVESTMENT GRADE FUNDS
Statements of Operations
For the Year Ended October 31, 1999
<TABLE>
<CAPTION>
Adjustable Rate
Government Fund
<S> <C>
Investment income:
Interest(a) $23,854,240
----------------------------------------------------------------------------
Total income 23,854,240
----------------------------------------------------------------------------
Expenses:
Management fees 1,591,935
Distribution and service fees(b) 83,944
Transfer agent fees(c) 209,559
Custodian fees 142,859
Registration fees 105,604
Professional fees 64,010
Trustee fees 9,605
Administration share fees 8,232
Service share fees 3,765
Amortization of deferred organization expenses --
Other 47,535
----------------------------------------------------------------------------
Total expenses 2,267,048
----------------------------------------------------------------------------
Less -- expenses reimbursed and fees waived (154,703)
----------------------------------------------------------------------------
Net Expenses 2,112,345
----------------------------------------------------------------------------
NET INVESTMENT INCOME 21,741,895
----------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment, futures and foreign cur-
rency transactions:
Net realized gain (loss) from:
Investment transactions (1,434,338)
Futures transactions 681,758
Foreign currency related transactions --
Net change in unrealized gain (loss) on:
Investments (208,230)
Futures (1,011,241)
Translation of assets and liabilities
denominated in foreign currencies --
----------------------------------------------------------------------------
Net realized and unrealized loss on investment,
futures and foreign currency transactions: (1,972,051)
----------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS $19,769,844
----------------------------------------------------------------------------
</TABLE>
(a) Net of $1,344 and $83,125 in foreign withholding tax for the Core Fixed
Income and Global Income Funds, respectively.
(b) Class A, Class B and Class C of the following funds had distribution and
service fees of:
Adjustable Rate Government Fund -- $83,944 for Class A only.
Short Duration Government Fund -- $132,906, $55,049, and $67,893,
respectively.
Government Income Fund -- $215,650, $187,747, and $104,190, respectively.
Core Fixed Income Fund -- $142,505, $122,578, and $71,888, respectively.
Global Income Fund -- $1,269,380, $120,645, and $70,592, respectively.
(c) The following funds had transfer agency fees of:
Adjustable Rate Government Fund -- $63,797, $144,144, $1,317, and $301 for
Class A, Institutional Class, Administrative Class and Service Class,
respectively.
Short Duration Government Fund -- $101,009, $10,459, $12,900, $60,679,
$1,988, and $2,550 for Class A, Class B, Class C, Institutional Class,
Administration Class, and Service Class, respectively.
Government Income Fund -- $163,893, $35,672, $19,796, $1,824, and $4 for
Class A, Class B, Class C, Institutional Class and Service Class,
respectively.
Core Fixed Income Fund -- $108,303, $23,290, $13,659, $80,696, $3,548, and
$2,754 for Class A, Class B, Class C, Institutional Class, Administration
Class, and Service Class, respectively.
Global Income Fund -- $482,364, $22,923, $13,411, $96,357, and $377 for
Class A, Class B, Class C, Institutional Class and Service Class,
respectively.
The accompanying notes are an integral part of these financial statements.
44
<PAGE>
GOLDMAN SACHS TAXABLE INVESTMENT GRADE FUNDS
<TABLE>
<CAPTION>
Short Duration Government Core Fixed Global
Government Fund Income Fund Income Fund Income Fund
<S> <C> <C> <C>
$15,013,183 $ 7,945,055 $ 19,137,123 $ 28,082,990
------------------------------------------------------------------------------------
15,013,183 7,945,055 19,137,123 28,082,990
------------------------------------------------------------------------------------
1,142,521 780,149 1,175,776 4,633,504
255,848 507,587 336,971 1,460,617
189,585 221,189 232,250 615,432
123,904 115,845 183,400 411,155
61,701 62,298 84,010 126,906
66,906 63,676 62,146 93,939
9,766 9,618 9,737 9,719
12,426 -- 22,173 --
31,877 45 34,419 4,708
-- -- 4,362 --
51,631 38,015 65,539 41,329
------------------------------------------------------------------------------------
1,946,165 1,798,422 2,210,783 7,397,309
------------------------------------------------------------------------------------
(313,026) (416,676) (103,492) (1,949,538)
------------------------------------------------------------------------------------
1,633,139 1,381,746 2,107,291 5,447,771
------------------------------------------------------------------------------------
13,380,044 6,563,309 17,029,832 22,635,219
------------------------------------------------------------------------------------
(2,653,310) (1,694,434) (5,230,345) (3,684,004)
686,607 (537,611) (1,265,780) (994,608)
-- -- 61,387 (1,422,955)
(4,468,745) (4,991,411) (11,201,102) (23,571,113)
(1,796,301) (240,398) (692,824) (3,270)
-- -- 5,048 656,373
------------------------------------------------------------------------------------
(8,231,749) (7,463,854) (18,323,616) (29,019,577)
------------------------------------------------------------------------------------
$ 5,148,295 $ (900,545) $ (1,293,784) $ (6,384,358)
------------------------------------------------------------------------------------
</TABLE>
45
<PAGE>
GOLDMAN SACHS TAXABLE INVESTMENT GRADE FUNDS
Statements of Changes in Net Assets
For the Year Ended October 31, 1999
<TABLE>
<CAPTION>
Adjustable Rate
Government Fund
<S> <C>
From operations:
Net investment income $21,741,895
Net realized loss on investment, futures and foreign
currency related transactions (752,580)
Net change in unrealized gain (loss) on investments, futures
and translation of assets and liabilities denominated in
foreign currencies (1,219,471)
------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations 19,769,844
------------------------------------------------------------------------------
Distributions to shareholders:
From net investment income
Class A shares (1,554,543)
Class B shares --
Class C shares --
Institutional shares (17,799,251)
Administration shares (156,305)
Service shares (33,888)
From capital
Class A shares (199,076)
Class B shares --
Class C shares --
Institutional shares (2,279,391)
Administration shares (20,017)
Service shares (4,340)
From net realized gain on investment, futures and foreign
currency transactions
Class A shares --
Class B shares --
Class C shares --
Institutional shares --
Administration shares --
Service shares --
------------------------------------------------------------------------------
Total distributions to shareholders (22,046,811)
------------------------------------------------------------------------------
From share transactions:
Proceeds from sales of shares 505,773,211
Reinvestment of dividends and distributions 11,575,172
Cost of shares repurchased (685,219,828)
------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from share
transactions (167,871,445)
------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) (170,148,412)
------------------------------------------------------------------------------
Net assets:
Beginning of year 508,831,211
------------------------------------------------------------------------------
End of year $338,682,799
------------------------------------------------------------------------------
Accumulated undistributed net investment income $ --
------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
46
<PAGE>
GOLDMAN SACHS TAXABLE INVESTMENT GRADE FUNDS
<TABLE>
<CAPTION>
Short Duration Government Core Fixed Global
Government Fund Income Fund Income Fund Income Fund
<S> <C> <C> <C>
$ 13,380,044 $ 6,563,309 $ 17,029,832 $ 22,635,219
(1,966,703) (2,232,045) (6,434,738) (6,101,567)
(6,265,046) (5,231,809) (11,888,878) (22,918,010)
-------------------------------------------------------------------------------------
5,148,295 (900,545) (1,293,784) (6,384,358)
-------------------------------------------------------------------------------------
(2,885,366) (4,701,931) (3,111,344) (10,433,058)
(267,022) (881,113) (579,641) (456,703)
(316,483) (489,690) (337,695) (263,007)
(8,877,237) (267,417) (11,800,204) (11,462,739)
(278,181) -- (495,974) --
(341,400) (484) (368,926) (40,207)
-- -- -- (457,628)
-- -- -- (20,032)
-- -- -- (11,536)
-- -- -- (502,793)
-- -- -- --
-- -- -- (1,764)
-- (1,930,242) (896,935) (5,398,726)
-- (406,494) (144,240) (219,025)
-- (228,993) (92,870) (129,352)
-- (63,106) (2,576,039) (4,630,914)
-- -- (181,000) --
-- (39) (84,628) (17,604)
-------------------------------------------------------------------------------------
(12,965,689) (8,969,509) (20,669,496) (34,045,088)
-------------------------------------------------------------------------------------
285,443,513 249,312,834 303,446,837 348,114,845
8,005,144 7,441,375 13,487,926 20,654,882
(292,142,829) (258,554,530) (265,160,385) (160,439,290)
-------------------------------------------------------------------------------------
1,305,828 (1,800,321) 51,774,378 208,330,437
-------------------------------------------------------------------------------------
(6,511,566) (11,670,375) 29,811,098 167,900,991
-------------------------------------------------------------------------------------
225,379,553 129,423,189 282,798,771 409,177,465
-------------------------------------------------------------------------------------
$218,867,987 $117,752,814 $312,609,869 $577,078,456
-------------------------------------------------------------------------------------
$ 615,596 $ 49,258 $ 122,700 $ 2,395,515
-------------------------------------------------------------------------------------
</TABLE>
47
<PAGE>
GOLDMAN SACHS TAXABLE INVESTMENT GRADE FUNDS
Statements of Changes in Net Assets
For the Year Ended October 31, 1998
<TABLE>
<CAPTION>
Adjustable
Rate
Government
Fund
<S> <C>
From operations:
Net investment income $ 27,751,730
Net realized gain (loss) on investment, futures and foreign
currency related transactions (1,432,798)
Net change in unrealized gain (loss) on investments, futures
and translation of assets and liabilities denominated in
foreign currencies (6,927,104)
-----------------------------------------------------------------------------
Net increase in net assets resulting from operations 19,391,828
-----------------------------------------------------------------------------
Distributions to shareholders:
From net investment income
Class A shares (2,487,566)
Class B shares --
Class C shares --
Institutional shares (25,001,833)
Administration shares (234,475)
Service shares (27,856)
In excess of net investment income
Class A shares (98,798)
Class B shares --
Class C shares --
Institutional shares (992,993)
Administration shares (9,313)
Service shares (1,106)
From net realized gain on investment, futures and foreign
currency transactions
Class A shares --
Class B shares --
Class C shares --
Institutional shares --
Administration shares --
Service shares --
-----------------------------------------------------------------------------
Total distributions to shareholders (28,853,940)
-----------------------------------------------------------------------------
From share transactions:
Proceeds from sales of shares 480,828,950
Reinvestment of dividends and distributions 20,351,273
Cost of shares repurchased (492,929,797)
-----------------------------------------------------------------------------
Net increase in net assets resulting from share transactions 8,250,426
-----------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) (1,211,686)
-----------------------------------------------------------------------------
Net assets:
Beginning of year 510,042,897
-----------------------------------------------------------------------------
End of year $ 508,831,211
-----------------------------------------------------------------------------
Accumulated undistributed (distributions in excess of) net
investment income $ (3,550,919)
-----------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
48
<PAGE>
GOLDMAN SACHS TAXABLE INVESTMENT GRADE FUNDS
<TABLE>
<CAPTION>
Short Duration Government Core Fixed Global
Government Fund Income Fund Income Fund Income Fund
<S> <C> <C> <C>
$ 9,612,953 $ 6,235,094 $ 10,922,376 $ 14,339,751
(360,410) 2,722,191 3,888,127 3,580,157
1,213,423 787,495 2,127,689 14,771,995
-----------------------------------------------------------------------------------
10,465,966 9,744,780 16,938,192 32,691,903
-----------------------------------------------------------------------------------
(1,420,203) (5,471,980) (1,853,415) (11,773,305)
(124,011) (589,599) (152,279) (310,470)
(88,564) (181,328) (150,232) (116,153)
(7,578,309) (126,383) (8,016,713) (6,720,480)
(270,953) -- (664,748) --
(265,819) (114) (176,911) (25,498)
-- (316,755) (75,186) --
-- (34,130) (6,177) --
-- (10,497) (6,094) --
-- (7,316) (325,203) --
-- -- (26,966) --
-- (7) (7,176) --
-- (336,409) (84,830) (628,833)
-- (41,187) (8,016) (15,200)
-- (9,732) (4,098) (4,258)
-- (8,246) (459,667) (240,253)
-- -- (51,390) --
-- (7) (10,588) (604)
-----------------------------------------------------------------------------------
(9,747,859) (7,133,690) (12,079,689) (19,835,054)
-----------------------------------------------------------------------------------
301,176,652 174,396,555 274,106,821 254,174,010
6,473,398 5,523,470 8,519,118 13,914,727
(201,542,539) (133,099,760) (102,188,552) (103,905,121)
-----------------------------------------------------------------------------------
106,107,511 46,820,265 180,437,387 164,183,616
-----------------------------------------------------------------------------------
106,825,618 49,431,355 185,295,890 177,040,465
-----------------------------------------------------------------------------------
118,553,935 79,991,834 97,502,881 232,137,000
-----------------------------------------------------------------------------------
$ 225,379,553 $ 129,423,189 $ 282,798,771 $ 409,177,465
-----------------------------------------------------------------------------------
$ 567,164 $ (202,850) $ -- $ 4,880,723
-----------------------------------------------------------------------------------
</TABLE>
49
<PAGE>
GOLDMAN SACHS TAXABLE INVESTMENT GRADE FUNDS
Notes to Financial Statements
October 31, 1999
1. ORGANIZATION
Goldman Sachs Trust (the "Trust") is a Delaware business trust registered un-
der the Investment Company Act of 1940 (as amended) as an open-end, manage-
ment investment company. The Trust includes Goldman Sachs Adjustable Rate
Government Fund (Adjustable Rate Government), Goldman Sachs Short Duration
Government Fund (Short Duration Government), Goldman Sachs Government Income
Fund (Government Income), Goldman Sachs Core Fixed Income Fund (Core Fixed
Income) and Goldman Sachs Global Income Fund (Global Income), collectively,
"the Funds" or individually a "Fund." Adjustable Rate Government, Short Dura-
tion Government, Government Income, and Core Fixed Income are diversified
portfolios of the Trust whereas Global Income is a non-diversified portfolio.
Adjustable Rate Government offers three classes of shares -- Class A, Insti-
tutional and Service. Government Income, Short Duration Government, Core
Fixed Income and Global Income offer five classes of shares -- Class A, Class
B, Class C, Institutional and Service. On July 20, 1999, Administration Class
shares for Adjustable Rate Government, Short Duration Government, and Core
Fixed Income were liquidated and are no longer offered.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Funds. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make es-
timates and assumptions that may affect the reported amounts. Actual results
could differ from those estimates.
A. Investment Valuation -- Portfolio securities for which accurate market
quotations are readily available are valued on the basis of quotations fur-
nished by a pricing service or provided by dealers in such securities. Port-
folio securities for which accurate market quotations are not readily
available are valued based on yield equivalents, pricing matrices or other
sources, under valuation procedures established by the Trust's Board of
Trustees. Short-term debt obligations maturing in sixty days or less are val-
ued at amortized cost.
B. Security Transactions and Investment Income -- Security transactions are
recorded as of the trade date. Realized gains and losses on sales of portfo-
lio securities are calculated using the identified cost basis. Interest in-
come is recorded on the basis of interest accrued. Premiums on interest-only
securities and on collateralized mortgage obligations with nominal principal
amounts are amortized, on an effective yield basis, over the expected lives
of the respective securities.
Certain mortgage security paydown gains and losses are taxable as ordinary
income. Such paydown gains and losses increase or decrease taxable ordinary
income available for distribution and are classified as interest income in
the accompanying Statements of Operations. Original issue discounts ("OID")
on debt securities are amortized to interest income over the life of the se-
curity with a corresponding increase in the cost basis of that security. OID
amortization on mortgage backed REMIC securities is initially recorded based
on estimates of principal paydowns using the most recent OID factors avail-
able from the issuer. Recorded amortization amounts are adjusted when actual
OID factors are received. Market discounts and market premiums on debt secu-
rities, other than mortgage backed REMIC securities, are amortized to inter-
est income over the life of the security with a corresponding adjustment in
the cost basis of that security for Core Fixed Income. Global Income amor-
tizes only market discounts on debt securities other than REMIC mortgage
backed securities.
C. Federal Taxes -- It is each Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and
to distribute each year substantially all of its investment company taxable
and tax- exempt income and capital gains to its shareholders. Accordingly, no
federal tax provisions are required.
50
<PAGE>
GOLDMAN SACHS TAXABLE INVESTMENT GRADE FUNDS
The characterization of distributions to shareholders for financial report-
ing purposes is determined in accordance with income tax rules. Therefore,
the source of a Fund's distributions may be shown in the accompanying finan-
cial statements as either from or in excess of net investment income or net
realized gain on investment transactions, or from paid-in-capital, depending
on the type of book/tax differences that may exist.
The Funds, at their most recent tax year-ends of October 31, 1999, had ap-
proximately the following amounts of capital loss carryforward for U.S. fed-
eral tax purposes. These amounts are available to be carried forward to
offset future capital gains to the extent permitted by applicable laws or
regulations.
<TABLE>
<CAPTION>
Years of
Fund Amount Expiration
-----------------------------------------------------------------------------------------
<S> <C> <C>
Adjustable Rate Government $50,033,000 2000-2007
-----------------------------------------------------------------------------------------
Short Duration Government 17,097,000 2002-2007
-----------------------------------------------------------------------------------------
Government Income 2,397,000 2007
-----------------------------------------------------------------------------------------
Core Fixed Income 6,931,000 2007
-----------------------------------------------------------------------------------------
Global Income 4,047,000 2007
-----------------------------------------------------------------------------------------
</TABLE>
At October 31, 1999 the Funds' aggregate unrealized gains and losses based
on cost for federal income tax purposes was as follows:
<TABLE>
<CAPTION>
Gross Gross Net Unrealized
Fund Tax Cost Unrealized Gain Unrealized Loss Loss
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Adjustable Rate
Government $342,456,781 $ 136,354 $ (5,462,625) $(5,326,271)
------------------------------------------------------------------------------
Short Duration
Government 240,317,246 419,507 (3,647,645) (3,228,138)
------------------------------------------------------------------------------
Government Income 136,062,952 181,303 (3,151,450) (2,970,147)
------------------------------------------------------------------------------
Core Fixed Income 354,206,579 622,301 (7,958,064) (7,335,763)
------------------------------------------------------------------------------
Global Income 569,282,561 12,036,946 (20,395,918) (8,358,972)
------------------------------------------------------------------------------
</TABLE>
D. Expenses -- Expenses incurred by the Trust that do not specifically relate
to an individual Fund of the Trust are allocated to the Funds on a straight-
line or pro rata basis depending upon the nature of the expense.
Class A, Class B and Class C shareholders of the Funds bear all expenses
and fees relating to their respective distribution and service plans. Share-
holders of Service and Administration shares bear all expenses and fees paid
to service organizations. Each class of shares of the Funds separately bears
its respective class-specific transfer agency fees.
E. Deferred Organization Expenses -- Organization-related costs were amor-
tized on a straight-line basis over a period of five years. The amortization
costs of all funds are fully amortized.
F. Foreign Currency Translations -- The books and records of the Funds are
maintained in U.S. dollars. Amounts denominated in foreign currencies are
translated into U.S. dollars on the following basis: (i) investment valua-
tions, foreign currency and other assets and liabilities initially expressed
in foreign currencies are converted each business day into U.S. dollars based
upon current exchange rates; (ii) purchases and sales of foreign investments,
income and expenses are converted into U.S. dollars based upon currency ex-
change rates prevailing on the respective dates of such transactions.
51
<PAGE>
GOLDMAN SACHS TAXABLE INVESTMENT GRADE FUNDS
Notes to Financial Statements
October 31, 1999
Net realized and unrealized gain (loss) on foreign currency transactions
will represent: (i) foreign exchange gains and losses from the sale and hold-
ings of foreign currencies and sale of investments; (ii) gains and losses be-
tween trade date and settlement date on investment securities transactions
and forward exchange contracts; and (iii) gains and losses from the differ-
ence between amounts of interest recorded and the amounts actually received.
G. Mortgage Dollar Rolls -- The Funds may enter into mortgage "dollar rolls"
in which the Funds sell securities in the current month for delivery and si-
multaneously contract with the same counterparty to repurchase similar (same
type, coupon and maturity) but not identical securities on a specified future
date. For financial reporting and tax reporting purposes, the Funds treat
mortgage dollar rolls as two separate transactions; one involving the pur-
chase of a security and a separate transaction involving a sale.
H. Segregation Transactions -- The Funds may enter into certain derivative
transactions to seek to increase total return. Forward foreign currency ex-
change contracts, futures contracts, written options, mortgage dollar rolls,
when-issued securities and forward commitments represent examples of such
transactions. As a result of entering into those transactions, the Funds are
required to segregate liquid assets on the accounting records equal to or
greater than the market value of the corresponding transactions.
3. AGREEMENTS
Pursuant to the Investment Management Agreements (the "Agreements"), Goldman
Sachs Funds Management, L.P. ("GSFM"), an affiliate of Goldman, Sachs & Co.
("Goldman Sachs"), serves as the investment adviser for Adjustable Rate Gov-
ernment and Short Duration Government. Goldman Sachs Asset Management
("GSAM"), a unit of the Investment Management Division of Goldman Sachs,
serves as the investment adviser for Government Income and Core Fixed Income.
Goldman Sachs Asset Management International ("GSAMI"), an affiliate of GSAM,
serves as the investment adviser for Global Income. Under the Agreements, the
respective adviser, subject to the general supervision of the Trust's Board
of Trustees, manages the Funds' portfolios. As compensation for the services
rendered pursuant to the Agreements, the assumption of the expenses related
thereto and administering the Funds' business affairs, including providing
facilities, the adviser is entitled to a fee, computed daily and payable
monthly at an annual rate equal to .40%, .50%, .65%, .40% and .90% of average
daily net assets of Adjustable Rate Government, Short Duration Government,
Government Income, Core Fixed Income and Global Income, respectively. For the
year ended October 31, 1999 the advisers for Government Income and Global In-
come voluntarily have agreed to waive a portion of their management fee equal
annually to .11% and .25%, respectively, of each Fund's average daily net as-
sets. The advisers may discontinue or modify these waivers in the future at
their discretion.
Each adviser has voluntarily agreed to limit "Other Expenses" (excluding
management fees, distribution and service fees, transfer agent fees, taxes,
interest, brokerage, litigation, Administrative and Service share fees, in-
demnification costs and other extraordinary expenses) to the extent that such
expenses exceed, on an annual basis, .05%, .00%, .00%, .10% and .00% of the
average daily net assets of Adjustable Rate Government, Short Duration Gov-
ernment, Government Income, Core Fixed Income and Global Income, respective-
ly.
Goldman Sachs serves as Distributor of the shares of the Funds pursuant to
a Distribution Agreement. Goldman Sachs may receive a portion of the Class A
sales load and Class B and Class C contingent deferred sales charges and has
advised the Funds that it retained approximately $11,000, $38,000, $111,000,
$59,000 and $233,000 for the year ended October 31, 1999 for Adjustable Rate
Government, Short Duration Government, Government Income, Core Fixed Income
and Global Income, respectively.
The Trust, on behalf of each Fund, has adopted Distribution and Service
Plans. Under the Distribution and Service Plans, Goldman Sachs and/or Autho-
rized Dealers are entitled to a monthly fee from each fund for distribution
services and shareholder maintenance equal, on an annual basis, to .50%,
1.00% and 1.00% for Global Income and .25%, 1.00% and
52
<PAGE>
GOLDMAN SACHS TAXABLE INVESTMENT GRADE FUNDS
1.00% of each of the other funds' average daily net assets attributable to
Class A, Class B and Class C shares, respectively. For the year ended October
31, 1999, Goldman Sachs has voluntarily agreed to waive a portion of the Dis-
tribution and Service fees equal to .15% of the average daily net assets at-
tributable to the Class B shares of Short Duration Government. Goldman Sachs
may discontinue or modify this waiver in the future at its discretion.
Goldman Sachs also serves as Transfer Agent of the Funds for a fee. Fees
charged for such transfer agency services are calculated daily and payable
monthly at an annual rate as follows: .19% of the average daily net assets
for Class A, Class B and Class C shares and .04% of the average daily net as-
sets for Institutional, Service and Administration Shares.
The Trust, on behalf of the Funds, has adopted Service Plans. In addition,
the Trust, on behalf of Adjustable Rate Government, Short Duration Government
and Core Fixed Income, has adopted Administration Plans. These plans allow
for Administration shares and Service shares, respectively, to compensate
service organizations for providing varying levels of account administration
and shareholder liaison services to their customers who are beneficial owners
of such shares. The Administration and Service Plans provide for compensation
to the service organizations in an amount up to, on an annual basis, .25% and
..50%, respectively, of the average daily net asset value of each share class.
On July 21, 1999, the Administration Plan was terminated due to the liquida-
tion of the Administration Class shares on July 20, 1999.
For the year ended October 31, 1999, the advisors and distributor have vol-
untarily agreed to waive certain fees and reimburse other expenses as follows
(in thousands):
<TABLE>
<CAPTION>
Waivers
--------------------------
Class B
Distribution Expense
Fund Management and Service Reimbursement Total
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Adjustable Rate Government $ -- $ -- $155 $ 155
-------------------------------------------------------------------------------
Short Duration Government -- 8 305 313
-------------------------------------------------------------------------------
Government Income 132 -- 285 417
-------------------------------------------------------------------------------
Core Fixed Income -- -- 103 103
-------------------------------------------------------------------------------
Global Income 1,288 -- 662 1,950
-------------------------------------------------------------------------------
</TABLE>
At October 31, 1999, the amounts owed to affiliates were as follows (in
thousands):
<TABLE>
<CAPTION>
Distribution Transfer
Fund Management and Service Agent Total
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Adjustable Rate Government $117 $ 5 $14 $136
-------------------------------------------------------------------------------
Short Duration Government 94 22 16 132
-------------------------------------------------------------------------------
Government Income 55 44 18 117
-------------------------------------------------------------------------------
Core Fixed Income 105 32 21 158
-------------------------------------------------------------------------------
Global Income 319 136 57 512
-------------------------------------------------------------------------------
</TABLE>
53
<PAGE>
GOLDMAN SACHS TAXABLE INVESTMENT GRADE FUNDS
Notes to Financial Statements
October 31, 1999
4. PORTFOLIO SECURITY TRANSACTIONS
Purchases and proceeds of sales or maturities of long-term securities for the
year ended October 31, 1999, were as follows:
<TABLE>
<CAPTION>
Sales or Sales or maturities
Purchases of Purchases maturities of (excluding
U.S. Government (excluding U.S. Government U.S. Government and
and agency U.S. Government and and agency agency
Fund obligations agency obligations) obligations obligations)
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Adjustable
Rate Gov-
ernment $146,642,706 $ -- $269,031,404 $ --
-----------------------------------------------------------------------------------
Short Du-
ration Gov-
ernment 392,709,173 -- 385,148,495 --
-----------------------------------------------------------------------------------
Government
Income 318,882,509 8,767,513 319,451,630 15,364,468
-----------------------------------------------------------------------------------
Core Fixed
Income 700,272,578 129,615,546 711,768,271 86,186,112
-----------------------------------------------------------------------------------
Global In-
come 225,175,491 730,667,755 258,731,027 496,731,425
-----------------------------------------------------------------------------------
</TABLE>
Forward Foreign Currency Exchange Contracts -- Core Fixed Income and Global
Income may enter into forward foreign currency exchange contracts for the
purchase or sale of a specific foreign currency at a fixed price on a future
date as a hedge or cross-hedge against either specific transactions or port-
folio positions. Core Fixed Income and Global Income may also purchase and
sell forward contracts to seek to increase total return. All commitments are
"marked-to-market" daily at the applicable translation rates and any result-
ing unrealized gains or losses are recorded in the Funds' financial state-
ments. The Funds record realized gains or losses at the time a forward
contract is offset by entry into a closing transaction or extinguished by de-
livery of the currency. Risks may arise upon entering into these contracts
from the potential inability of counterparties to meet the terms of their
contracts and from unanticipated movements in the value of a foreign currency
relative to the U.S. dollar.
At October 31, 1999, Core Fixed Income had outstanding forward foreign ex-
change contracts, both to purchase and sell foreign currencies as follows:
<TABLE>
<CAPTION>
Open Foreign Currency Value on Current Unrealized Unrealized
Sale Contracts Settlement Date Value Gain Loss
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Euro Currency
expiring 11/15/1999 $7,686,580 $7,691,558 $ -- $ 4,978
------------------------------------------------------------------------------
Total Open Foreign Currency
Sale Contracts $7,686,580 $7,691,558 $ -- $ 4,978
------------------------------------------------------------------------------
<CAPTION>
Closed but Unsettled
Foreign Realized Realized
Currency Contracts Purchase Value Sale Value Gain Loss
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Australian Dollar
expiring 12/13/1999 $4,007,653 $3,950,789 $ -- $56,864
------------------------------------------------------------------------------
Total Closed but Unsettled
Foreign Currency Contracts $4,007,653 $3,950,789 $ -- $56,864
------------------------------------------------------------------------------
</TABLE>
54
<PAGE>
GOLDMAN SACHS TAXABLE INVESTMENT GRADE FUNDS
At October 31, 1999, Global Income had outstanding forward foreign currency
exchange contracts, both to purchase and sell foreign currencies as follows:
<TABLE>
<CAPTION>
Open Foreign Currency Value on Unrealized Unrealized
Purchase Contracts Settlement Date Current Value Gain Loss
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Australian Dollar
expiring 12/13/1999 $ 4,835,986 $ 4,669,305 $ -- $ 166,681
Canadian Dollar
expiring 11/30/1999 14,117,329 14,259,515 142,186 --
expiring 12/7/1999 14,177,000 14,294,888 117,888 --
Japanese Yen
expiring 12/2/1999 7,105,000 7,389,092 284,092 --
Swedish Krona
expiring 12/1/1999 3,950,598 3,950,006 -- 592
-----------------------------------------------------------------------------
Total Open Foreign Cur-
rency
Purchase Contracts $ 44,185,913 $ 44,562,806 $ 544,166 $ 167,273
-----------------------------------------------------------------------------
<CAPTION>
Open Foreign Currency Value on Unrealized Unrealized
Sale Contracts Settlement Date Current Value Gain Loss
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Danish Krone
expiring 1/21/2000 $ 11,345,187 $ 11,183,702 $ 161,485 $ --
Euro Currency
expiring 12/6/1999 20,254,650 20,340,166 -- 85,516
expiring 1/26/2000 176,251,300 172,003,458 4,247,842 --
Great British Pound
expiring 12/6/1999 39,499,415 39,463,874 35,541 --
Japanese Yen
expiring 11/18/1999 71,507,082 76,993,551 -- 5,486,469
expiring 12/3/1999 23,483,365 23,342,371 140,994 --
expiring 12/20/1999 12,397,938 13,886,375 -- 1,488,437
New Zealand Dollar
expiring 11/15/1999 10,664,420 10,185,180 479,240 --
-----------------------------------------------------------------------------
Total Open Foreign Cur-
rency
Sale Contracts $365,403,357 $367,398,677 $5,065,102 $7,060,422
-----------------------------------------------------------------------------
</TABLE>
55
<PAGE>
GOLDMAN SACHS TAXABLE INVESTMENT GRADE FUNDS
Notes to Financial Statements
October 31, 1999
<TABLE>
<CAPTION>
Closed but Unsettled
Foreign Purchase Realized Realized
Currency Contracts Value Sale Value Gain Loss
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Japanese Yen
expiring 11/18/1999 $28,678,000 $28,200,123 $ -- $477,877
expiring 11/18/1999 7,260,000 7,320,758 60,758 --
expiring 11/30/1999 7,210,504 7,226,000 15,496 --
expiring 12/3/1999 14,140,000 14,562,224 422,224 --
Great British Pound
expiring 12/6/1999 7,200,000 7,153,296 -- 46,704
Australian Dollar
expiring 12/13/1999 9,826,115 9,661,100 -- 165,015
Euro Currency
expiring 1/26/2000 5,360,574 5,414,736 54,162 --
----------------------------------------------------------------------
Total Closed but Unsettled
Foreign Currency Contracts $79,675,193 $79,538,237 $552,640 $689,596
----------------------------------------------------------------------
</TABLE>
The contractual amounts of forward foreign currency exchange contracts do
not necessarily represent the amounts potentially subject to risk. The mea-
surement of the risks associated with these instruments is meaningful only
when all related and offsetting transactions are considered. At October 31,
1999, Global Income and Core Fixed Income had sufficient cash and/or securi-
ties to cover any commitments under these contracts.
Global Income has recorded a "Receivable for forward foreign currency ex-
change contracts" and "Payable for forward foreign currency exchange con-
tracts" resulting from open and closed but not settled forward foreign
currency exchange contracts of $6,161,908 and $7,917,291, respectively, in
the accompanying Statement of Assets and Liabilities.
Core Fixed Income has recorded a "Payable for forward foreign currency ex-
change contracts" resulting from open and closed but not settled forward for-
eign currency exchange contracts of $61,842 in the accompanying Statement of
Assets and Liabilities.
Futures Contracts -- The Funds may enter into futures transactions to hedge
against changes in interest rates, securities prices, currency exchange rates
(in the case of Core Fixed Income and Global Income) or to seek to increase
total return. Upon entering into a futures contract, the Funds are required
to deposit with a broker an amount of cash or securities equal to the minimum
"initial margin" requirement of the associated futures exchange. Subsequent
payments for futures contracts ("variation margin") are paid or received by
the Funds daily, dependent on the daily fluctuations in the value of the con-
tracts, and are recorded for financial reporting purposes as unrealized gains
or losses. When contracts are closed, the Funds realize a gain or loss which
is reported in the Statements of Operations.
The use of futures contracts involve, to varying degrees, elements of mar-
ket and counterparty risk which may exceed the amounts recognized in the
Statements of Assets and Liabilities. Changes in the value of the futures
contract may not directly correlate with changes in the value of the under-
lying securities. This risk may decrease the effectiveness of the Funds'
strategies and potentially result in a loss.
For the year ended October 31, 1999, Adjustable Rate Government, Short Du-
ration Government, Government Income, Core Fixed Income and Global Income in-
curred commission expenses of approximately $51,000, $44,000, $14,000,
$39,000 and $19,000, respectively, in connection with futures contracts en-
tered into with Goldman Sachs.
56
<PAGE>
GOLDMAN SACHS TAXABLE INVESTMENT GRADE FUNDS
At October 31, 1999, open futures contracts were as follows:
<TABLE>
<CAPTION>
Number of
Contracts Settlement Unrealized
Fund Type Long (Short) Month Market Value Gain (Loss)
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Adjustable Rate Govern-
ment Fund Euro Dollars 215 December 1999 $ 50,514,250 $ (85,664)
Euro Dollars 97 March 2000 22,814,400 (14,380)
Euro Dollars 60 June 2000 14,085,750 10,135
Euro Dollars (20) September 2000 (4,688,500) (3,377)
Euro Dollars (20) December 2000 (4,680,250) (6,877)
Euro Dollars (20) March 2001 (4,678,500) (4,877)
5 Year U.S. Treasury Notes (120) December 1999 (12,954,375) (38,856)
10 Year U.S. Treasury Notes (233) December 1999 (25,564,469) (33,458)
20 Year U.S. Treasury Bond (14) December 1999 (1,590,312) (26,273)
-----------------------
$ 33,257,994 $(203,627)
----------------------------------------------------------------------------------------------------------
Short Duration Govern-
ment Fund Euro Dollars 55 December 1999 $ 12,922,250 $ (60,879)
Euro Dollars 35 March 2000 8,232,000 (36,160)
Euro Dollars 65 June 2000 15,259,563 (197,850)
Euro Dollars 85 September 2000 19,926,125 (269,790)
2 Year U.S. Treasury Notes 261 December 1999 54,039,234 (50,527)
5 Year U.S. Treasury Notes (259) December 1999 (27,959,859) (34,757)
10 Year U.S. Treasury Notes (193) December 1999 (21,175,719) (15,152)
20 Year U.S. Treasury Bond (89) December 1999 (10,109,844) (14,573)
-----------------------
$ 51,133,750 $(679,688)
----------------------------------------------------------------------------------------------------------
Government Income Fund Euro Dollars 10 December 1999 $ 2,349,500 $ (26,189)
Euro Dollars 10 March 2000 2,352,000 562
Euro Dollars 10 September 2000 2,344,250 (16,564)
2 Year U.S. Treasury Notes 5 December 1999 1,035,234 (968)
5 Year U.S. Treasury Notes (33) December 1999 (3,562,453) (5,427)
10 Year U.S. Treasury Notes 20 December 1999 2,194,375 (1,653)
20 Year U.S. Treasury Bond 22 December 1999 2,499,063 6,491
-----------------------
$ 9,211,969 $ (43,748)
----------------------------------------------------------------------------------------------------------
Core Fixed Income Fund Euro Dollars 20 December 1999 $ 4,699,000 $ (67,252)
Euro Dollars 25 March 2000 5,880,000 (40,408)
5 Year U.S. Treasury Notes (233) December 1999 (25,153,078) (35,982)
10 Year U.S. Treasury Notes (40) December 1999 (4,388,750) (4,382)
20 Year U.S. Treasury Bond 360 December 1999 40,893,750 37,792
-----------------------
$(21,930,922) $(110,232)
----------------------------------------------------------------------------------------------------------
Global Income Fund Euro Dollars 12 December 1999 $ 2,819,400 $ (4,800)
Euro Dollars 9 March 2000 2,116,800 1,575
Euro Dollars 7 June 2000 1,643,338 1,225
5 Year U.S. Treasury Notes (116) December 1999 (12,522,562) 10,062
10 Year U.S. Treasury Notes (252) December 1999 (27,649,124) 209,220
20 Year U.S. Treasury Bond 240 December 1999 27,262,500 (39,688)
-----------------------
$ (6,329,648) $ 177,594
----------------------------------------------------------------------------------------------------------
</TABLE>
57
<PAGE>
GOLDMAN SACHS TAXABLE INVESTMENT GRADE FUNDS
Notes to Financial Statements
October 31, 1999
5. REPURCHASE AGREEMENTS
During the term of a repurchase agreement, the value of the underlying secu-
rities, including accrued interest, is required to equal or exceed the value
of the repurchase agreement. The underlying securities for all repurchase
agreements are held in safekeeping by a bank custodian.
6. JOINT REPURCHASE AGREEMENT ACCOUNT
The Funds, together with other registered investment companies having manage-
ment agreements with GSFM, GSAMI and GSAM or their affiliates, transfer
uninvested cash into joint accounts, the daily aggregate balance of which is
invested in one or more repurchase agreements.
At October 31, 1999, Adjustable Rate Government, Short Duration Government,
Government Income and Core Fixed Income had undivided interests in the repur-
chase agreements in the following joint account which equaled $9,400,000,
$18,300,000, $15,500,000, and $49,700,000, respectively, in principal amount.
At October 31, 1999, the following repurchase agreements held in this joint
account were fully collateralized by Federal Agency obligations.
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Repurchase Agreements Amount Rate Date Cost
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ABN/AMRO, Inc. $ 420,000,000 5.33% 11/01/1999 $ 420,000,000
-----------------------------------------------------------------------------------------
Bear Stearns Companies, Inc. 200,000,000 5.33 11/01/1999 200,000,000
-----------------------------------------------------------------------------------------
Deutsche Morgan Grenfell 318,700,000 5.33 11/01/1999 318,700,000
-----------------------------------------------------------------------------------------
Banc of America Securities 1,000,000,000 5.33 11/01/1999 1,000,000,000
-----------------------------------------------------------------------------------------
SG Cowen Securities 400,000,000 5.33 11/01/1999 400,000,000
-----------------------------------------------------------------------------------------
TOTAL JOINT REPURCHASE AGREEMENT ACCOUNT $2,338,700,000
-----------------------------------------------------------------------------------------
</TABLE>
7. LINE OF CREDIT FACILITY
The Funds participated in a $250,000,000 uncommitted, unsecured revolving
line of credit facility which was terminated on April 30, 1999. In addition,
Global Income participated in a $50,000,000 committed, unsecured revolving
line of credit facility. Under the most restrictive arrangement, each Fund
must have owned securities having a market value in excess of 300% of the to-
tal bank borrowings. Effective April 30, 1999, the Funds now participate in a
$250,000,000 uncommitted and a $250,000,000 committed, unsecured revolving
line of credit facility. Under the most restrictive arrangement, each Fund
must own securities having a market value in excess of 400% of the total bank
borrowings. These facilities are to be used solely for temporary or emergency
purposes. The interest rate on borrowings is based on the Federal Funds rate.
The committed facility also requires a fee to be paid by the Funds based on
the amount of the commitment which has not been utilized. During the year
ended October 31, 1999, the Funds did not have any borrowings under any of
these facilities.
8. OTHER MATTERS
As of October 31, 1999, the Goldman, Sachs & Co. Profit Sharing Master Trust
was the beneficial owner of approximately 20% and 10% of the outstanding
shares of Short Duration Government and Global Income, respectively. The
Goldman Sachs Balanced Strategy Portfolio was the beneficial owner of approx-
imately 16% of Short Duration Government. The Goldman
58
<PAGE>
GOLDMAN SACHS TAXABLE INVESTMENT GRADE FUNDS
Sachs Growth and Income Strategy Portfolio was the beneficial owner of ap-
proximately 16% and 16% of Core Fixed Income and Global Income, respectively.
The Goldman Sachs Growth Strategy Portfolio was the beneficial owner of ap-
proximately 7% of Global Income.
9. CERTAIN RECLASSIFICATIONS
In accordance with Statement of Position 93-2, Adjustable Rate Government has
reclassified $73,291 and $3,782,544 from accumulated net realized gain and
paid-in capital, respectively, to accumulated undistributed net investment
income. Short Duration Government has reclassified $365,923 and $80,351 from
accumulated undistributed net investment income and paid-in capital, respec-
tively, to accumulated net realized loss. Government Income Fund has reclas-
sified $6,901 and $22,533 from accumulated net realized gain and paid-in
capital, respectively, to accumulated undistributed net investment income.
Core Fixed Income has reclassified $213,348 and $6,123 from accumulated un-
distributed net investment income and paid-in capital, respectively, to accu-
mulated net realized loss. Global Income Fund has reclassified $237,235 and
$1,470,960 from paid-in capital and accumulated undistributed net investment
income, respectively, to accumulated net realized gain.
These reclassifications have no impact on the net asset value of each Fund
and are designed to present each Fund's capital accounts on a tax basis.
10. CHANGE IN INDEPENDENT AUDITORS
On October 26, 1999 the Board of Trustees of the Funds, upon the recommenda-
tion of the Board's audit committee, determined not to retain Arthur Andersen
LLP and approved a change of the Funds' independent auditors to Ernst & Young
LLP. For the fiscal years ended October 31, 1999 and October 31, 1998, Arthur
Andersen LLP's audit reports contained no adverse opinion or disclaimer of
opinion; nor were their reports qualified or modified as to uncertainty, au-
dit scope, or accounting principles. Further, there were no disagreements be-
tween the Funds and Arthur Andersen LLP on accounting principles or
practices, financial statement disclosure or audit scope or procedure, which
if not resolved to the satisfaction of Arthur Andersen LLP would have caused
them to make reference to the disagreement in their report.
59
<PAGE>
GOLDMAN SACHS TAXABLE INVESTMENT GRADE FUNDS
Notes to Financial Statements
October 31, 1999
11. SUMMARY OF SHARE TRANSACTIONS
Share activity for the year ended October 31, 1999 is as follows:
<TABLE>
<CAPTION>
Adjustable Rate
Government Short Duration Government
--------------------------------------------------------
Shares Dollars Shares Dollars
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Shares
Shares sold 31,904,130 $ 307,792,374 10,095,040 $ 98,117,271
Reinvestment of divi-
dends and distributions 119,965 1,158,237 216,498 2,098,601
Shares repurchased (35,923,098) (346,731,900) (10,580,288) (102,834,224)
--------------------------------------------------------
(3,899,003) (37,781,289) (268,750) (2,618,352)
--------------------------------------------------------------------------------
Class B Shares
Shares sold -- -- 536,977 5,189,723
Reinvestment of divi-
dends and distributions -- -- 19,167 185,709
Shares repurchased -- -- (338,423) (3,279,805)
--------------------------------------------------------
-- -- 217,721 2,095,627
--------------------------------------------------------------------------------
Class C Shares
Shares sold -- -- 8,886,376 86,234,626
Reinvestment of divi-
dends and distributions -- -- 20,160 197,199
Shares repurchased -- -- (8,627,888) (83,700,711)
--------------------------------------------------------
-- -- 278,648 2,731,114
--------------------------------------------------------------------------------
Institutional Shares
Shares sold 20,323,432 196,917,377 9,547,581 92,884,069
Reinvestment of divi-
dends and distributions 1,061,620 10,265,385 513,104 4,969,995
Shares repurchased (34,221,185) (331,249,902) (9,495,933) (92,157,561)
--------------------------------------------------------
(12,836,133) (124,067,140) 564,752 5,696,503
--------------------------------------------------------------------------------
Administration Shares
Shares sold 68,624 664,460 89,932 879,455
Reinvestment of divi-
dends and distributions 11,849 114,653 21,750 212,241
Shares repurchased (699,098) (6,780,446) (853,809) (8,273,964)
--------------------------------------------------------
(618,625) (6,001,333) (742,127) (7,182,268)
--------------------------------------------------------------------------------
Service Shares
Shares sold 41,184 399,000 220,831 2,138,369
Reinvestment of divi-
dends and distributions 3,813 36,897 35,301 341,399
Shares repurchased (47,218) (457,580) (195,427) (1,896,564)
--------------------------------------------------------
(2,221) (21,683) 60,705 583,204
--------------------------------------------------------------------------------
NET INCREASE (DECREASE) (17,355,982) $(167,871,445) 110,949 $ 1,305,828
--------------------------------------------------------------------------------
</TABLE>
60
<PAGE>
GOLDMAN SACHS TAXABLE INVESTMENT GRADE FUNDS
<TABLE>
<CAPTION>
Government Income Core Fixed Income Global Income
- -----------------------------------------------------------------------------------
Shares Dollars Shares Dollars Shares Dollars
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
15,480,704 $ 221,875,202 15,664,674 $ 153,790,343 11,408,207 $ 172,565,659
399,303 5,661,524 364,578 3,579,460 893,424 13,446,916
(16,666,682) (239,289,704) (14,632,982) (143,984,124) (7,423,402) (111,559,802)
- -----------------------------------------------------------------------------------
(786,675) (11,752,978) 1,396,270 13,385,679 4,878,229 74,452,773
- -----------------------------------------------------------------------------------
995,374 14,092,144 1,292,427 12,801,294 799,694 11,962,762
63,277 898,159 45,231 443,248 37,347 559,007
(704,136) (9,886,884) (499,533) (4,888,859) (200,617) (2,973,643)
- -----------------------------------------------------------------------------------
354,515 5,103,419 838,125 8,355,683 636,424 9,548,126
- -----------------------------------------------------------------------------------
584,857 8,274,255 731,786 7,234,043 427,735 6,481,148
44,022 624,389 26,464 260,185 19,764 296,195
(541,898) (7,636,754) (519,952) (5,098,447) (170,181) (2,517,755)
- -----------------------------------------------------------------------------------
86,981 1,261,890 238,298 2,395,781 277,318 4,259,588
- -----------------------------------------------------------------------------------
357,908 5,057,233 12,407,934 122,028,595 10,355,146 156,504,371
18,233 257,175 849,565 8,328,838 419,045 6,293,031
(122,650) (1,741,188) (9,506,792) (94,135,666) (2,870,867) (42,857,412)
- -----------------------------------------------------------------------------------
253,491 3,573,220 3,750,707 36,221,767 7,903,324 119,939,990
- -----------------------------------------------------------------------------------
-- -- 285,215 2,874,182 -- --
-- -- 43,863 435,986 -- --
-- -- (1,569,648) (15,306,734) -- --
- -----------------------------------------------------------------------------------
-- -- (1,240,570) (11,996,566) -- --
- -----------------------------------------------------------------------------------
987 14,000 480,043 4,718,380 39,802 600,905
9 128 44,910 440,209 3,980 59,733
-- -- (178,571) (1,746,555) (34,363) (530,678)
- -----------------------------------------------------------------------------------
996 14,128 346,382 3,412,034 9,419 129,960
- -----------------------------------------------------------------------------------
(90,692) $ (1,800,321) 5,329,212 $ 51,774,378 13,704,714 $ 208,330,437
- -----------------------------------------------------------------------------------
</TABLE>
61
<PAGE>
GOLDMAN SACHS TAXABLE INVESTMENT GRADE FUNDS
Notes to Financial Statements
October 31, 1999
11. SUMMARY OF SHARE TRANSACTIONS
Share activity for the year ended October 31, 1998 is as follows:
<TABLE>
<CAPTION>
Adjustable Rate
Government Short Duration Government
------------------------------------------------------
Shares Dollars Shares Dollars
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Shares
Shares sold 19,932,653 $ 194,697,319 16,985,961 $ 167,624,322
Reinvestments of dividends and distributions 604,097 5,945,679 120,111 1,185,808
Shares repurchased (18,654,663) (182,295,231) (12,340,018) (121,740,352)
------------------------------------------------------
1,882,087 18,347,767 4,766,054 47,069,778
-------------------------------------------------------------------------------------------------------------------------------
Class B Shares
Shares sold -- -- 603,049 5,943,625
Reinvestments of dividends and distributions -- -- 7,568 74,540
Shares repurchased -- -- (177,997) (1,755,511)
------------------------------------------------------
-- -- 432,620 4,262,654
-------------------------------------------------------------------------------------------------------------------------------
Class C Shares
Shares sold -- -- 2,838,549 27,966,526
Reinvestments of dividends and distributions -- -- 4,686 46,150
Shares repurchased -- -- (2,404,324) (23,689,726)
------------------------------------------------------
-- -- 438,911 4,322,950
-------------------------------------------------------------------------------------------------------------------------------
Institutional Shares
Shares sold 28,576,509 280,382,576 8,996,219 88,597,711
Reinvestments of dividends and distributions 1,450,779 14,219,494 476,030 4,685,919
Shares repurchased (31,436,222) (308,484,524) (5,282,160) (51,951,739)
------------------------------------------------------
(1,408,934) (13,882,454) 4,190,089 41,331,891
-------------------------------------------------------------------------------------------------------------------------------
Administration Shares
Shares sold 526,967 5,168,122 643,992 6,337,403
Reinvestments of dividends and distributions 16,347 159,947 21,813 215,247
Shares repurchased (207,333) (2,030,808) (30,888) (304,789)
------------------------------------------------------
335,981 3,297,261 634,917 6,247,861
-------------------------------------------------------------------------------------------------------------------------------
Service Shares
Shares sold 59,251 580,933 478,854 4,707,065
Reinvestments of dividends and distributions 2,671 26,153 26,999 265,734
Shares repurchased (12,170) (119,234) (213,862) (2,100,422)
------------------------------------------------------
49,752 487,852 291,991 2,872,377
-------------------------------------------------------------------------------------------------------------------------------
NET INCREASE 858,886 $ 8,250,426 10,754,582 $ 106,107,511
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
62
<PAGE>
GOLDMAN SACHS TAXABLE INVESTMENT GRADE FUNDS
<TABLE>
<CAPTION>
Government Income Core Fixed Income Global Income
---------------------------------------------------------------------------------
Shares Dollars Shares Dollars Shares Dollars
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
10,117,601 $ 148,936,815 8,313,076 $ 84,205,066 6,208,388 $ 94,795,767
317,568 4,667,254 192,581 1,951,173 644,423 9,725,285
(8,375,782) (123,588,302) (3,945,813) (40,108,401) (4,034,417) (61,329,954)
---------------------------------------------------------------------------------
2,059,387 30,015,767 4,559,844 46,047,838 2,818,394 43,191,098
---------------------------------------------------------------------------------
988,916 14,582,947 762,323 7,750,260 358,077 5,463,974
36,689 539,851 10,510 106,863 16,608 250,647
(495,310) (7,326,615) (133,282) (1,356,868) (83,968) (1,277,096)
---------------------------------------------------------------------------------
530,295 7,796,183 639,551 6,500,255 290,717 4,437,525
---------------------------------------------------------------------------------
695,338 10,239,137 641,726 6,499,362 284,497 4,320,887
12,307 181,980 10,040 102,303 6,328 95,885
(143,057) (2,112,718) (135,503) (1,377,439) (61,616) (932,193)
---------------------------------------------------------------------------------
564,588 8,308,399 516,263 5,224,226 229,209 3,484,579
---------------------------------------------------------------------------------
43,336 637,656 16,206,866 163,978,142 9,752,852 148,646,615
9,140 134,281 558,960 5,664,936 252,867 3,816,828
(4,930) (72,125) (5,578,137) (56,603,166) (2,632,348) (40,270,900)
---------------------------------------------------------------------------------
47,546 699,812 11,187,689 113,039,912 7,373,371 112,192,543
---------------------------------------------------------------------------------
-- -- 779,791 7,866,673 -- --
-- -- 49,361 499,933 -- --
-- -- (201,424) (2,053,871) -- --
---------------------------------------------------------------------------------
-- -- 627,728 6,312,735 -- --
---------------------------------------------------------------------------------
-- -- 375,085 3,807,318 62,146 946,767
7 104 19,089 193,910 1,707 26,082
-- -- (67,401) (688,807) (6,198) (94,978)
---------------------------------------------------------------------------------
7 104 326,773 3,312,421 57,655 877,871
---------------------------------------------------------------------------------
3,201,823 $ 46,820,265 17,857,848 $180,437,387 10,769,346 $164,183,616
---------------------------------------------------------------------------------
</TABLE>
63
<PAGE>
GOLDMAN SACHS ADJUSTABLE RATE GOVERNMENT FUND
Financial Highlights
Selected Data for a Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
Income (loss) from
investment
operations(a) Distributions to shareholders
---------------------- -----------------------------
Net Net
realized increase
Net asset and In excess (decrease)
value at Net unrealized From net of net in net
beginning investment gain investment investment From asset
of period income (loss) income income capital value
FOR THE YEARS ENDED OCTOBER 31,
<S> <C> <C> <C> <C> <C> <C> <C>
1999 - Class A Shares $9.69 $0.49 $(0.05) $(0.44) $ -- $(0.06) $(0.06)
1999 - Institutional
Shares 9.70 0.53 (0.05) (0.48) -- (0.06) (0.06)
1999 - Administration
Shares(g) 9.70 0.37(f) 0.01 (f) (0.33) -- (0.04) 0.01
1999 - Service Shares 9.70 0.48 (0.04) (0.43) -- (0.06) (0.05)
--------------------------------------------------------------------------------------------------
1998 - Class A Shares 9.88 0.53 (0.17) (0.53) (0.02) -- (0.19)
1998 - Institutional
Shares 9.88 0.55 (0.16) (0.55) (0.02) -- (0.18)
1998 - Administration
Shares 9.88 0.53 (0.16) (0.53) (0.02) -- (0.18)
1998 - Service Shares 9.88 0.51 (0.16) (0.51) (0.02) -- (0.18)
--------------------------------------------------------------------------------------------------
1997 - Class A Shares 9.83 0.57(f) 0.05 (f) (0.57) -- -- 0.05
1997 - Institutional
Shares 9.83 0.59(f) 0.05 (f) (0.59) -- -- 0.05
1997 - Administration
Shares 9.83 0.57(f) 0.05 (f) (0.57) -- -- 0.05
1997 - Service Shares
(commenced March 27) 9.84 0.33(f) 0.04 (f) (0.33) -- -- 0.04
--------------------------------------------------------------------------------------------------
1996 - Class A Shares 9.77 0.55(f) 0.08 (f) (0.55) (0.02) -- 0.06
1996 - Institutional
Shares 9.77 0.57(f) 0.08 (f) (0.57) (0.02) -- 0.06
1996 - Administration
Shares 9.77 0.55(f) 0.08 (f) (0.55) (0.02) -- 0.06
--------------------------------------------------------------------------------------------------
1995 - Class A Shares
(commenced May 15) 9.79 0.27(f) (0.01)(f) (0.27) (0.01) -- (0.02)
1995 - Institutional
Shares 9.74 0.56(f) 0.07 (f) (0.57) (0.03) -- 0.03
1995 - Administration
Shares 9.74 0.54(f) 0.07 (f) (0.55) (0.03) -- 0.03
--------------------------------------------------------------------------------------------------
</TABLE>
(a) Includes the balancing effect of calculating per share amounts.
(b) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all distributions, a complete redemption of the
investment at the net asset value at the end of period and no sales
charge. Total return would be reduced if a sales charge for Class A
shares were taken into account.
(c) Annualized.
(d) Not annualized.
(e) Includes the effect of mortgage dollar roll transactions.
(f) Calculated based on the average shares outstanding methodology.
(g) Administration Class shares were liquidated on July 20, 1999. Ending net
asset value shown as of July 20, 1999.
The accompanying notes are an integral part of these financial statements.
64
<PAGE>
GOLDMAN SACHS ADJUSTABLE RATE GOVERNMENT FUND
<TABLE>
<CAPTION>
Ratios assuming no voluntary waiver
of fees or expense limitations
-------------------------------------
Net assets Ratio of Ratio of
Net asset at end of Ratio of net investment Ratio of net investment Portfolio
value, end Total period net expenses to income to expenses to income to turnover
of period return(b) (in 000s) average net assets average net assets average net assets average net assets rate(e)
<S> <C> <C> <C> <C> <C> <C> <C>
$9.63 4.65% $ 22,862 0.89% 5.15% 0.93% 5.11% 38.86%
9.64 5.06 315,024 0.49 5.49 0.53 5.45 38.86
9.71(g) 4.02(d) -- 0.74(c) 5.35(c) 0.78(c) 5.31(c) 38.86
9.65 4.65 797 0.99 4.99 1.03 4.95 38.86
-------------------------------------------------------------------------------------------------------------------------
9.69 3.71 60,782 0.80 5.40 1.02 5.18 33.64
9.70 4.09 441,228 0.53 5.63 0.53 5.63 33.64
9.70 3.83 5,999 0.78 5.33 0.78 5.33 33.64
9.70 3.57 822 1.03 5.09 1.03 5.09 33.64
-------------------------------------------------------------------------------------------------------------------------
9.88 6.43 43,393 0.74 5.60 1.02 5.32 46.58
9.88 6.70 463,511 0.49 5.99 0.52 5.96 46.58
9.88 6.43 2,793 0.74 5.73 0.77 5.70 46.58
9.88 3.81(d) 346 1.05(c) 5.64(c) 1.08(c) 5.61(c) 46.58
-------------------------------------------------------------------------------------------------------------------------
9.83 6.60 10,728 0.70 5.59 1.01 5.28 52.36
9.83 6.86 613,149 0.45 5.85 0.51 5.79 52.36
9.83 6.60 3,792 0.70 5.59 0.76 5.53 52.36
-------------------------------------------------------------------------------------------------------------------------
9.77 2.74(d) 15,203 0.69(c) 5.87(c) 1.01(c) 5.55(c) 24.12
9.77 6.75 657,358 0.46 5.77 0.53 5.70 24.12
9.77 6.48 3,572 0.71 5.50 0.78 5.43 24.12
-------------------------------------------------------------------------------------------------------------------------
</TABLE>
65
<PAGE>
GOLDMAN SACHS SHORT DURATION GOVERNMENT FUND
Financial Highlights
Selected Data for a Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
Income (loss) from Distributions to
investment operations(a) shareholders
-------------------------- ----------------
Net asset Net increase
value at Net Net realized From net (decrease)
beginning investment and unrealized investment in net asset
of period income gain (loss) income value
FOR THE YEARS ENDED OCTOBER 31,
<S> <C> <C> <C> <C> <C>
1999 - Class A Shares $9.91 $0.55 $(0.36) $(0.53) $(0.34)
1999 - Class B Shares 9.88 0.48 (0.33) (0.47) (0.32)
1999 - Class C Shares 9.88 0.47 (0.36) (0.45) (0.34)
1999 - Institutional
Shares 9.90 0.59 (0.35) (0.57) (0.33)
1999 - Administration
Shares(h) 9.91 0.40(f) (0.25)(f) (0.39) (0.24)
1999 - Service Shares 9.89 0.54 (0.35) (0.52) (0.33)
-----------------------------------------------------------------------------------------
1998 - Class A Shares 9.88 0.57 0.04 (0.58) 0.03
1998 - Class B Shares 9.86 0.51 0.03 (0.52) 0.02
1998 - Class C Shares 9.86 0.49 0.03 (0.50) 0.02
1998 - Institutional
Shares 9.86 0.58 0.06 (0.60) 0.04
1998 - Administration
Shares 9.89 0.55 0.05 (0.58) 0.02
1998 - Service Shares 9.86 0.55 0.04 (0.56) 0.03
-----------------------------------------------------------------------------------------
1997 - Class A Shares
(commenced May 1) 9.78 0.31(f) 0.09 (f) (0.30) 0.10
1997 - Class B Shares
(commenced May 1) 9.75 0.28(f) 0.10 (f) (0.27) 0.11
1997 - Class C Shares
(commenced August 15) 9.83 0.12(f) 0.02 (f) (0.11) 0.03
1997 - Institutional
Shares 9.83 0.64(f) 0.03 (f) (0.64) 0.03
1997 - Administration
Shares 9.85 0.62(f) 0.04 (f) (0.62) 0.04
1997 - Service Shares 9.82 0.59(f) 0.04 (f) (0.59) 0.04
-----------------------------------------------------------------------------------------
1996 - Institutional
Shares 9.82 0.63(f) 0.01 (f) (0.63) 0.01
1996 - Administration
Shares(g) 9.86 0.38(f) -- (f) (0.39) (0.01)
1996 - Service Shares
(Commenced April 10) 9.72 0.31(f) 0.10 (f) (0.31) 0.10
-----------------------------------------------------------------------------------------
1995 - Institutional
Shares 9.64 0.66(f) 0.17 (f) (0.65) 0.18
1995 - Administration
Shares(g) 9.64 0.24(f) (0.04)(f) (0.21) (0.01)
-----------------------------------------------------------------------------------------
</TABLE>
(a) Includes the balancing effect of calculating per share amounts.
(b) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all distributions, a complete redemption of the
investment at the net asset value at the end of the period and no sales
charge. Total return would be reduced if a sales or redemption charge
were taken into account.
(c) Annualized.
(d) Not annualized.
(e) Includes the effect of mortgage dollar roll transactions.
(f) Calculated based on the average shares outstanding methodology.
(g) Short Duration Government Fund Administration shares commenced activity
on April 15, 1993, were redeemed in full on February 23, 1995 and re-
commenced on February 28, 1996 at $9.86.
(h) Administration Class shares were liquidated on July 20, 1999. Ending net
asset value shown as of July 20, 1999.
The accompanying notes are an integral part of these financial statements.
66
<PAGE>
GOLDMAN SACHS SHORT DURATION GOVERNMENT FUND
<TABLE>
<CAPTION>
Ratios assuming no voluntary waiver
of fees or expense limitations
---------------------------------------
Net assets Ratio of Ratio of
Net asset at end of Ratio of net investment Ratio of net investment Portfolio
value, end Total period net expenses to income to expenses to income to turnover
of period return(b) (in 000s) average net assets average net assets average net assets average net assets rate(e)
<S> <C> <C> <C> <C> <C> <C> <C>
$9.57 1.97% $ 52,235 0.94% 5.61% 1.07% 5.48% 172.61%
9.56 1.56 6,937 1.54 5.04 1.82 4.76 172.61
9.54 1.21 7,029 1.69 4.83 1.82 4.70 172.61
9.57 2.49 146,062 0.54 6.03 0.67 5.90 172.61
9.67(h) 1.57(d) -- 0.79(c) 5.76(c) 0.92(c) 5.63(c) 172.61
9.56 1.97 6,605 1.04 5.54 1.17 5.41 172.61
-----------------------------------------------------------------------------------------------------------------------------
9.91 6.36 56,725 0.81 5.68 1.32 5.17 119.89
9.88 5.62 5,025 1.41 5.12 1.87 4.66 119.89
9.88 5.46 4,527 1.56 4.64 1.87 4.33 119.89
9.90 6.75 145,514 0.53 6.06 0.84 5.75 119.89
9.91 6.27 7,357 0.78 5.76 1.09 5.45 119.89
9.89 6.12 6,232 1.03 5.56 1.34 5.25 119.89
-----------------------------------------------------------------------------------------------------------------------------
9.88 4.14(d) 9,491 0.70(c) 6.05(c) 1.32(c) 5.43(c) 102.58
9.86 3.94(d) 747 1.30(c) 5.52(c) 1.82(c) 5.00(c) 102.58
9.86 1.44(d) 190 1.45(c) 5.52(c) 1.82(c) 5.15(c) 102.58
9.86 7.07 103,729 0.45 6.43 0.82 6.06 102.58
9.89 6.91 1,060 0.70 6.19 1.07 5.82 102.58
9.86 6.63 3,337 0.95 5.92 1.32 5.55 102.58
-----------------------------------------------------------------------------------------------------------------------------
9.83 6.75 99,944 0.45 6.44 0.71 6.18 115.45
9.85 4.00(d) 252 0.70(c) 5.97(c) 0.96(c) 5.71(c) 115.45
9.82 4.35(d) 1,822 0.95(c) 6.05(c) 1.21(c) 5.79(c) 115.45
-----------------------------------------------------------------------------------------------------------------------------
9.82 8.97 103,760 0.45 6.87 0.72 6.60 292.56
9.63 2.10(d) -- 0.70(c) 7.91(c) 0.90(c) 7.71(c) 292.56
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
67
<PAGE>
GOLDMAN SACHS GOVERNMENT INCOME FUND
Financial Highlights
Selected Data for a Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
Income (loss) from
investment operations(a) Distributions to shareholders
------------------------- ------------------------------------------
Net asset In excess
value, Net Net realized From net of net From
beginning investment and unrealized investment investment net realized
of period income gain (loss) income income gains
FOR THE YEARS ENDED OCTOBER 31,
<S> <C> <C> <C> <C> <C> <C>
1999 - Class A Shares $14.91 $0.80 $(0.89) $(0.77) $ -- $(0.35)
1999 - Class B Shares 14.92 0.69 (0.87) (0.67) -- (0.35)
1999 - Class C Shares 14.91 0.69 (0.88) (0.66) -- (0.35)
1999 - Institutional
Shares 14.90 0.85 (0.88) (0.83) -- (0.35)
1999 - Service Shares 14.88 0.77 (0.92) (0.75) -- (0.35)
----------------------------------------------------------------------------------------------------
1998 - Class A Shares 14.59 0.81 0.45 (0.81) (0.07) (0.06)
1998 - Class B Shares 14.61 0.72 0.42 (0.72) (0.05) (0.06)
1998 - Class C Shares 14.60 0.74 0.40 (0.74) (0.03) (0.06)
1998 - Institutional
Shares 14.59 0.87 0.42 (0.87) (0.05) (0.06)
1998 - Service Shares 14.59 0.80 0.40 (0.80) (0.05) (0.06)
----------------------------------------------------------------------------------------------------
1997 - Class A Shares 14.36 0.91 0.29 (0.90) -- (0.07)
1997 - Class B Shares 14.37 0.80 0.30 (0.79) -- (0.07)
1997 - Class C Shares
(commenced August 15) 14.38 0.17 0.22 (0.17) -- --
1997 - Institutional
Shares (commenced
August 15) 14.37 0.20 0.22 (0.20) -- --
1997 - Service Shares
(commenced August 15) 14.37 0.20 0.21 (0.19) -- --
----------------------------------------------------------------------------------------------------
1996 - Class A shares 14.47 0.92 (0.11) (0.92) -- --
1996 - Class B shares
(commenced May 1) 14.11 0.41 0.26 (0.41) -- --
----------------------------------------------------------------------------------------------------
1995 - Class A shares 13.47 0.94 1.00 (0.94) -- --
----------------------------------------------------------------------------------------------------
</TABLE>
(a) Includes the balancing effect of calculating per share amounts.
(b) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all distributions, a complete redemption of the
investment at the net asset value at the end of the period and no sales
charge. Total return would be reduced if a sales or redemption charge
were taken into account.
(c) Annualized.
(d) Not annualized.
(e) Includes the effect of mortgage dollar roll transactions.
The accompanying notes are an integral part of these financial statements.
68
<PAGE>
GOLDMAN SACHS GOVERNMENT INCOME FUND
<TABLE>
<CAPTION>
Ratios assuming no voluntary waiver
of fees or expense limitations
------------------------------------
Ratio of Ratio of
Net increase Net assets Ratio of net investment Ratio of net investment
(decrease) Net asset at end of net expenses to income to expenses to income to Portfolio
in net asset value, end Total period average average average average turnover
value of period return(b) (in 000s) net assets net assets net assets net assets rate(e)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$(1.21) $13.70 (0.63)% $ 82,102 0.98% 5.63% 1.33% 5.28% 277.64%
(1.20) 13.72 (1.29) 19,684 1.73 4.88 2.08 4.53 277.64
(1.20) 13.71 (1.29) 10,053 1.73 4.89 2.08 4.54 277.64
(1.21) 13.69 (0.23) 5,899 0.58 6.07 0.93 5.72 277.64
(1.25) 13.63 (1.01) 15 1.08 5.56 1.43 5.21 277.64
- --------------------------------------------------------------------------------------------------------------------------------
0.32 14.91 8.98 101,015 0.76 5.53 1.53 4.76 315.43
0.31 14.92 8.09 16,125 1.51 4.76 2.05 4.22 315.43
0.31 14.91 8.09 9,639 1.51 4.59 2.05 4.05 315.43
0.31 14.90 9.19 2,642 0.51 5.82 1.05 5.28 315.43
0.29 14.88 8.53 2 1.01 5.48 1.55 4.94 315.43
- --------------------------------------------------------------------------------------------------------------------------------
0.23 14.59 8.72 68,859 0.50 6.38 1.82 5.06 395.75
0.24 14.61 7.96 8,041 1.25 5.59 2.32 4.52 395.75
0.22 14.60 2.72(d) 1,196 1.25(c) 5.45(c) 2.32(c) 4.38(c) 395.75
0.22 14.59 2.94(d) 1,894 0.25(c) 7.03(c) 1.32(c) 5.96(c) 395.75
0.22 14.59 2.85(d) 2 0.75(c) 6.49(c) 1.82(c) 5.42(c) 395.75
- --------------------------------------------------------------------------------------------------------------------------------
(0.11) 14.36 5.80 30,603 0.50 6.42 1.89 5.03 485.09
0.26 14.37 4.85(d) 234 1.25(c) 5.65(c) 2.39(c) 4.51(c) 485.09
- --------------------------------------------------------------------------------------------------------------------------------
1.00 14.47 14.90 29,503 0.47 6.67 2.34 4.80 449.53
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
69
<PAGE>
GOLDMAN SACHS CORE FIXED INCOME FUND
Financial Highlights
Selected Data for a Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
Income (loss) from
investment operations(a) Distributions to shareholders
-------------------------- ------------------------------
Net asset In excess Net increase
value at Net Net realized From net of net From net (decrease)
beginning investment and unrealized investment investment realized in net asset
of period income gain (loss) income income gains value
FOR THE YEARS ENDED OCTOBER 31,
<S> <C> <C> <C> <C> <C> <C> <C>
1999 - Class A Shares $10.25 $0.54 $(0.61) $(0.53) $ -- $(0.15) $(0.75)
1999 - Class B Shares 10.28 0.48 (0.62) (0.47) -- (0.15) (0.76)
1999 - Class C Shares 10.28 0.47 (0.62) (0.46) -- (0.15) (0.76)
1999 - Institutional
Shares 10.28 0.58 (0.62) (0.57) -- (0.15) (0.76)
1999 - Administration
Shares(g) 10.27 0.40(f) (0.41)(f) (0.40) -- (0.15) (0.56)
1999 - Service Shares 10.28 0.54 (0.62) (0.53) -- (0.15) (0.76)
---------------------------------------------------------------------------------------------------------
1998 - Class A Shares 10.06 0.59 0.27 (0.59) (0.02) (0.06) 0.19
1998 - Class B Shares 10.09 0.52 0.27 (0.52) (0.02) (0.06) 0.19
1998 - Class C Shares 10.09 0.52 0.27 (0.52) (0.02) (0.06) 0.19
1998 - Institutional
Shares 10.08 0.61 0.29 (0.61) (0.03) (0.06) 0.20
1998 - Administration
Shares 10.07 0.57 0.29 (0.57) (0.03) (0.06) 0.20
1998 - Service Shares 10.09 0.56 0.27 (0.56) (0.02) (0.06) 0.19
---------------------------------------------------------------------------------------------------------
1997 - Class A Shares
(commenced May 1) 9.70 0.30 0.36 (0.30) -- -- 0.36
1997 - Class B Shares
(commenced May 1) 9.72 0.27 0.37 (0.27) -- -- 0.37
1997 - Class C Shares
(commenced August 15) 9.93 0.11 0.16 (0.11) -- -- 0.16
1997 - Institutional
Shares 9.85 0.64 0.23 (0.64) -- -- 0.23
1997 - Administration
Shares 9.84 0.62 0.23 (0.62) -- -- 0.23
1997 - Service Shares 9.86 0.59 0.23 (0.59) -- -- 0.23
---------------------------------------------------------------------------------------------------------
1996 - Institutional
Shares 10.00 0.64 (0.07) (0.64) -- (0.08) (0.15)
1996 - Administrative
Shares (commenced
February 28) 9.91 0.41 (0.07) (0.41) -- -- (0.07)
1996 - Service Shares
(commenced March 13) 9.77 0.38 0.09 (0.38) -- -- 0.09
---------------------------------------------------------------------------------------------------------
1995 - Institutional
Shares 9.24 0.64 0.76 (0.64) -- -- 0.76
---------------------------------------------------------------------------------------------------------
</TABLE>
(a) Includes the balancing effect of calculating per share amounts.
(b) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all distributions, a complete redemption of the
investment at the net asset value at the end of period and no sales
charge. Total return would be reduced if a sales or redemption charge
were taken into account.
(c) Annualized.
(d) Not annualized.
(e) Includes the effect of mortgage dollar roll transactions.
(f) Calculated based on average shares outstanding methodology.
(g) Administration Class shares were liquidated on July 20, 1999. Ending net
asset value shown as of July 20, 1999.
The accompanying notes are an integral part of these financial statements.
70
<PAGE>
GOLDMAN SACHS CORE FIXED INCOME FUND
<TABLE>
<CAPTION>
Ratios assuming no voluntary waiver
of fees or expense limitations
-------------------------------------
Net
assets Ratio of Ratio of
Net asset at end of Ratio of net investment Ratio of net investment Portfolio
value, end Total period net expenses to income to expenses to income to turnover
of period return(b) (in 000s) average net assets average net assets average net assets average net assets rate(e)
<S> <C> <C> <C> <C> <C> <C> <C>
$ 9.50 (0.68)% $ 65,368 0.94% 5.57% 0.98% 5.53% 279.67%
9.52 (1.47) 14,654 1.69 4.83 1.73 4.79 279.67
9.52 (1.51) 7,443 1.69 4.82 1.73 4.78 279.67
9.52 (0.37) 216,973 0.54 5.97 0.58 5.93 279.67
9.71(g) (0.13)(d) -- 0.79(c) 5.63(c) 0.83(c) 5.59(c) 279.67
9.52 (0.87) 8,172 1.04 5.50 1.08 5.46 279.67
- --------------------------------------------------------------------------------------------------------------------------
10.25 8.76 56,267 0.74 5.58 1.21 5.11 271.50
10.28 7.94 7,209 1.49 4.82 1.75 4.56 271.50
10.28 7.94 5,587 1.49 4.81 1.75 4.55 271.50
10.28 9.15 195,730 0.46 5.95 0.72 5.69 271.50
10.27 8.88 12,743 0.71 5.70 0.97 5.44 271.50
10.28 8.50 5,263 0.96 5.44 1.22 5.18 271.50
- --------------------------------------------------------------------------------------------------------------------------
10.06 6.94 (d) 9,336 0.70(c) 6.13(c) 1.33(c) 5.50(c) 361.27
10.09 6.63 (d) 621 1.45(c) 5.28(c) 1.83(c) 4.90(c) 361.27
10.09 2.74 (d) 272 1.45(c) 4.84(c) 1.83(c) 4.46(c) 361.27
10.08 9.19 79,230 0.45 6.53 0.83 6.15 361.27
10.07 8.92 6,176 0.70 6.27 1.08 5.89 361.27
10.09 8.65 1,868 0.95 6.00 1.33 5.62 361.27
- --------------------------------------------------------------------------------------------------------------------------
9.85 5.98 72,061 0.45 6.51 0.83 6.13 414.20
9.84 3.56 (d) 702 0.70(c) 6.41(c) 1.08(c) 6.03(c) 414.20
9.86 4.90 (d) 381 0.95(c) 6.37(c) 1.33(c) 5.99(c) 414.20
- --------------------------------------------------------------------------------------------------------------------------
10.00 15.72 55,502 0.45 6.56 0.96 6.05 382.26
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
71
<PAGE>
GOLDMAN SACHS GLOBAL INCOME FUND
Financial Highlights
Selected Data for a Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
Income (loss) from
investment operations(a) Distributions to shareholders
-------------------------- --------------------------------
Net asset Net increase
value, Net Net realized From net From (decrease)
beginning investment and unrealized investment From net realized in net asset
of period income gain (loss) income capital gains value
FOR THE YEARS ENDED OCTOBER 31,
<S> <C> <C> <C> <C> <C> <C> <C>
1999 - Class A Shares $15.65 $0.62(e) $(0.78)(e) $(0.61) $(0.03) $(0.36) $(1.16)
1999 - Class B Shares 15.63 0.53 (0.78) (0.55) (0.02) (0.36) (1.18)
1999 - Class C Shares 15.60 0.53 (0.77) (0.55) (0.02) (0.36) (1.17)
1999 - Institutional
Shares 15.64 0.71 (0.77) (0.71) (0.03) (0.36) (1.16)
1999 - Service Shares 15.64 0.64 (0.79) (0.63) (0.03) (0.36) (1.17)
----------------------------------------------------------------------------------------------------------------------
1998 - Class A Shares 15.10 0.72(e) 0.90(e) (1.01) -- (0.06) 0.55
1998 - Class B Shares 15.08 0.63(e) 0.92(e) (0.94) -- (0.06) 0.55
1998 - Class C Shares 15.06 0.63(e) 0.91(e) (0.94) -- (0.06) 0.54
1998 - Institutional
Shares 15.09 0.82(e) 0.90(e) (1.11) -- (0.06) 0.55
1998 - Service Shares 15.09 0.74(e) 0.91(e) (1.04) -- (0.06) 0.55
----------------------------------------------------------------------------------------------------------------------
1997 - Class A shares 14.53 0.59 0.77 (0.79) -- -- 0.57
1997 - Class B shares 14.53 0.72 0.56 (0.73) -- -- 0.55
1997 - Class C shares
(commenced August 15) 14.80 0.16 0.29 (0.19) -- -- 0.26
1997 - Institutional
Shares 14.52 0.88 0.56 (0.87) -- -- 0.57
1997 - Service Shares
(commenced March 12) 14.69 0.53 0.39 (0.52) -- -- 0.40
----------------------------------------------------------------------------------------------------------------------
1996 - Class A shares 14.45 0.71 0.80 (1.43) -- -- 0.08
1996 - Class B shares
(commenced May 1) 14.03 0.34 0.52 (0.36) -- -- 0.50
1996 - Institutional
shares 14.45 1.15 0.42 (1.50) -- -- 0.07
----------------------------------------------------------------------------------------------------------------------
1995 - Class A shares 13.43 0.89 1.07 (0.94) -- -- 1.02
1995 - Institutional
shares (commenced August
1) 14.09 0.22 0.40 (0.26) -- -- 0.36
----------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Includes the balancing effect of calculating per share amounts.
(b) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all distributions, a complete redemption of the
investment at the net asset value at the end of period and no sales
charge. Total return would be reduced if a sales or redemption charge
were taken into account.
(c) Annualized.
(d) Not annualized.
(e) Calculated based on the average shares outstanding methodology.
The accompanying notes are an integral part of these financial statements.
72
<PAGE>
GOLDMAN SACHS GLOBAL INCOME FUND
<TABLE>
<CAPTION>
Ratios assuming no voluntary waiver
of fees or expense limitations
-------------------------------------
Net assets Ratio of Ratio of
Net asset at end of Ratio of net investment Ratio of net investment Portfolio
value, end Total period net expenses to income to expenses to income to turnover
of period return(b) (in 000s) average net assets average net assets average net assets average net assets rate
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$14.49 (1.14)% $271,832 1.34% 4.12% 1.72% 3.74% 158.27%
14.45 (1.74) 16,724 1.84 3.60 2.22 3.22 158.27
14.43 (1.68) 7,786 1.84 3.60 2.22 3.22 158.27
14.48 (0.49) 279,621 0.69 4.75 1.07 4.37 158.27
14.47 (1.06) 1,115 1.19 4.28 1.57 3.90 158.27
- --------------------------------------------------------------------------------------------------------------------------
15.65 11.21 217,362 1.31 4.71 1.75 4.27 229.91
15.63 10.66 8,135 1.83 4.19 2.24 3.78 229.91
15.60 10.65 4,090 1.83 4.20 2.24 3.79 229.91
15.64 11.95 178,532 0.66 5.40 1.07 4.99 229.91
15.64 11.43 1,058 1.16 4.92 1.57 4.51 229.91
- --------------------------------------------------------------------------------------------------------------------------
15.10 9.66 167,096 1.17 5.19 1.60 4.76 383.72
15.08 9.04 3,465 1.71 4.76 2.10 4.37 383.72
15.06 3.03(d) 496 1.71(c) 4.98(c) 2.10(c) 4.59(c) 383.72
15.09 10.26 60,929 0.65 5.72 1.04 5.33 383.72
15.09 6.42(d) 151 1.15(c) 5.33(c) 1.54(c) 4.94(c) 383.72
- --------------------------------------------------------------------------------------------------------------------------
14.53 11.05 198,665 1.16 5.81 1.64 5.33 232.15
14.53 6.24(d) 256 1.70(c) 5.16(c) 2.14(c) 4.72(c) 232.15
14.52 11.55 54,254 0.65 6.35 1.11 5.89 232.15
- --------------------------------------------------------------------------------------------------------------------------
14.45 15.08 245,835 1.29 6.23 1.58 5.94 265.86
14.45 4.42(d) 31,619 0.65(c) 6.01(c) 1.08(c) 5.58(c) 265.86
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
73
<PAGE>
GOLDMAN SACHS TRUST TAXABLE INVESTMENT GRADE FUNDS
Report of Independent Public Accountants
To the Shareholders and Board of Trustees of Goldman Sachs Trust -- Taxable
Investment Grade Fixed Income Funds:
We have audited the accompanying statements of assets and liabilities of
Goldman Sachs Adjustable Rate Government Fund, Short Duration Government
Fund, Government Income Fund, Core Fixed Income Fund and Global Income Fund,
five of the portfolios constituting Goldman Sachs Trust -- Fixed Income Funds
(a Delaware Business Trust), including the statements of investments, as of
October 31, 1999, and the related statements of operations, the statements of
changes in net assets and the financial highlights for the periods presented.
These financial statements and the financial highlights are the responsibil-
ity of the Funds' management. Our responsibility is to express an opinion on
these financial statements and the financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the finan-
cial statements. Our procedures included confirmation of securities owned as
of October 31, 1999 by correspondence with the custodian and brokers. An au-
dit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and the financial highlights re-
ferred to above present fairly, in all material respects, the financial posi-
tion of Goldman Sachs Adjustable Rate Government Fund, Short Duration
Government Fund, Government Income Fund, Core Fixed Income Fund and Global
Income Fund as of October 31, 1999, the results of their operations, the
changes in their net assets and the financial highlights for the periods pre-
sented, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
December 10, 1999
74
<PAGE>
GOLDMAN SACHS SHORT DURATION TAX-FREE FUND
Statement of Investments
October 31, 1999
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
<S> <C> <C> <C>
Debt Obligations - 94.1%
Alabama - 5.8%
Alabama Building Renovation Financing Authority RB Series 1990 (A2)
$1,000,000 7.40% 09/01/2006 $ 1,047,110
Alabama State GO Bonds Series 1999 A (AA/Aa3)
4,000,000 5.50 10/01/2000 4,060,200
Scottsboro Alabama GO Bonds Warrants Series 1996 A (AMBAC) (AAA/Aaa)
1,000,000 5.75 11/01/2011 1,023,000
-----------------------------------------------------------------------------------------------
$ 6,130,310
-----------------------------------------------------------------------------------------------
Alaska - 1.3%
Valdez Alaska Marine Terminal RB for Sohio Pipeline Series 1991 (AA+)
$1,250,000 7.13% 12/01/2025 $ 1,333,263
-----------------------------------------------------------------------------------------------
Arizona - 2.0%
Arizona Transportation Board Highway RB Series 1991 A (AA/Aaa)
$2,000,000 6.55% 07/01/2007 $ 2,103,500
-----------------------------------------------------------------------------------------------
California - 6.8%
Palmdale Civic Authority RB Series 1994 (MBIA) (AAA/Aaa)
$1,695,000 6.60% 09/01/2034 $ 1,802,870
Sacramento County Housing Authority MF Hsg. RB for Rancho Natomas
Apartments Series 1 (LOC) (Baa1)
1,000,000 4.80 12/15/2007 1,000,000
San Francisco County International Airport RB Series 1993-2 (MBIA)
(AAA/Aaa)
4,000,000 6.75 05/01/2020 4,297,200
-----------------------------------------------------------------------------------------------
$ 7,100,070
-----------------------------------------------------------------------------------------------
Colorado - 1.2%
Larimer County School District COPS No. R1 Poudre Series 1991 D (A2)
$1,150,000 10.00% 12/01/2001 $ 1,274,051
-----------------------------------------------------------------------------------------------
Connecticut - 3.0%
Connecticut State Health and Educational Facilities RB for Special Care
Issue 1997 B (BBB/Baa2)
$3,365,000 5.13% 07/01/2007 $ 3,183,761
-----------------------------------------------------------------------------------------------
Florida - 5.9%
Citrus County PCRB for Florida Power Corp. Crystal River Series 1992 B
(A+/A1)
$2,000,000 6.35% 02/01/2022 $ 2,029,920
Jacksonville Florida Electric Authority RB for Bulk Power Scherer 4
Project Series 1993 A (AA/Aa2)
4,000,000 5.25 10/01/2021 4,133,680
-----------------------------------------------------------------------------------------------
$ 6,163,600
-----------------------------------------------------------------------------------------------
Illinois - 5.4%
Chicago Metropolitan Housing Development Corp. RB Series 1992-8 A (AMBAC)
(AAA/Aaa)
$2,500,000 6.85% 07/01/2022 $ 2,636,675
Illinois Health Facilities Authority RB for Highland Park Hospital Series
A (FGIC) (AAA/Aaa)
1,000,000 5.20 10/01/2001 1,015,570
-----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
<S> <C> <C> <C>
Debt Obligations - (continued)
Illinois - (continued)
Illinois Health Facilities Authority RB for University of Chicago
Hospitals Series A (MBIA) (AAA/Aaa)
$1,950,000 5.38% 08/15/2005 $ 1,998,496
-----------------------------------------------------------------------------------------------
$ 5,650,741
-----------------------------------------------------------------------------------------------
Indiana - 6.8%
Indiana Health Facilities Financing Authority Hospital RB for Methodist
Hospitals Series 1992 (A2)
$2,200,000 6.75% 09/15/2009 $ 2,310,682
Logansport Multi-Purpose School Building Corp. First Mortgages Series
1992 (A)
2,195,000 5.90 07/01/2005 2,280,715
Marion County Hospital Authority Facility RB for Methodist Hospitals of
Indiana Series 1989 (AAA/Aa3)
2,450,000 6.50 09/01/2013 2,512,401
-----------------------------------------------------------------------------------------------
$ 7,103,798
-----------------------------------------------------------------------------------------------
Louisiana - 3.6%
Lake Charles Harbor and Terminal District Port Facilities RB for
Trunkline Long Project Series 1992 (A3)
$2,500,000 7.75% 08/15/2022 $ 2,719,075
Louisiana Offshore Deepwater Port Terminal RB Series 1992 B (A/A3)
1,000,000 5.85 09/01/2000 1,009,150
-----------------------------------------------------------------------------------------------
$ 3,728,225
-----------------------------------------------------------------------------------------------
Maryland - 2.5%
Maryland State Health and Higher Educational Facilities Authority RB
Series 1997 (A-)
$1,600,000 5.50% 01/01/2021 $ 1,612,816
Maryland State Health and Higher Educational Facilities Authority RB
Series 1997 (LOC) (A)
1,000,000 4.75 07/01/2021 998,540
-----------------------------------------------------------------------------------------------
$ 2,611,356
-----------------------------------------------------------------------------------------------
Massachusetts - 5.2%
Boston Massachusetts RB for Boston City Hospital Series 1993 B (FHA) (AA-
/Aa)
$1,245,000 5.75% 02/15/2013 $ 1,237,605
Massachusetts Industrial Finance Agency RB for Brandeis College Series
1989 C (MBIA) (AAA/Aaa)
1,550,000 6.80 10/01/2019 1,592,005
Massachusetts State GO Bonds Series 1995 A (AA-/Aa3)
2,500,000 6.25 07/01/2003 2,639,925
-----------------------------------------------------------------------------------------------
$ 5,469,535
-----------------------------------------------------------------------------------------------
Michigan - 2.3%
Bishop International Airport Authority RB Series 1999 B (ACA) (A)
$2,420,000 5.00% 12/01/2007 $ 2,371,213
-----------------------------------------------------------------------------------------------
Missouri - 1.6%
St. Louis Municipal Finance Leasehold RB Series 1993 A (AMBAC) (AAA/Aaa)
$1,655,000 5.30% 07/15/2002 $ 1,689,043
-----------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
10
<PAGE>
GOLDMAN SACHS SHORT DURATION TAX-FREE FUND
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
<S> <C> <C> <C>
Debt Obligations - (continued)
Nebraska - 1.7%
Nebraska Investment Finance Authority MF Hsg. for Wycliffe West RB Series
1995 A (FNMA) (AAA)
$1,730,000 5.50% 12/01/2025 $ 1,758,753
-----------------------------------------------------------------------------------------------
New Jersey - 8.5%
New Jersey Economic Development Authority RB First Mortgage Keswick Pines
Project Series 1993 (Aaa)
$2,000,000 8.75% 01/01/2024 $ 2,325,540
New Jersey Highway Authority Garden State Parkway RB Series 1992 (AA-/A1)
3,250,000 6.00 01/01/2005 3,380,747
New Jersey Transportation Corp. Capital Grant RB Series 1997 A (FSA)
(AAA/Aaa)
3,100,000 5.40 09/01/2002 3,166,991
-----------------------------------------------------------------------------------------------
$ 8,873,278
-----------------------------------------------------------------------------------------------
New York - 7.9%
New York GO Bonds Series 1994 H-1 (A-/A3)
$1,000,000 6.00% 08/01/2006 $ 1,051,000
New York State COPS Series 1999 (BBB+/Baa1)
3,000,000 5.00 09/01/2001 3,028,470
New York State Housing Finance Agency RB Prerefunded Series 1995 A
(BBB+/Aaa)
3,800,000 6.50 03/15/2025 4,200,634
-----------------------------------------------------------------------------------------------
$ 8,280,104
-----------------------------------------------------------------------------------------------
Pennsylvania - 2.5%
Pennsylvania GO Bonds Series 1992 (AA/Aa3)
$2,500,000 6.30% 09/15/2005 $ 2,625,475
-----------------------------------------------------------------------------------------------
South Carolina - 5.2%
Georgetown County PCRB for International Paper Company Project Series
1992 (BBB+/A3)
$2,500,000 6.25% 06/15/2005 $ 2,604,250
South Carolina Public Service Authority RB Series 1991 B (AMBAC)
(AAA/Aaa)
2,700,000 7.10 07/01/2021 2,873,664
-----------------------------------------------------------------------------------------------
$ 5,477,914
-----------------------------------------------------------------------------------------------
Tennessee - 4.3%
Clarksville Public Building Authority RB for Pooled Loan Program Series
1993 (AA)
$1,500,000 4.75% 12/01/2000 $ 1,510,920
Tennessee GO Bonds Series 1991 B (AAA/Aaa)
2,800,000 6.85 06/01/2010 2,952,656
-----------------------------------------------------------------------------------------------
$ 4,463,576
-----------------------------------------------------------------------------------------------
Texas - 5.4%
Houston Water and Sewer System RB Series 1992 A (MBIA) (AAA/Aaa)
$2,000,000 6.38% 12/01/2022 $ 2,073,120
Memorial Villages Water Authority GO Bonds Series 1990 (Aa3)
390,000 7.00 09/01/2000 396,560
-----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
<S> <C> <C> <C>
Debt Obligations - (continued)
Texas - (continued)
Titus County Fresh Water RB for Southwestern Electric Power Company
Series 1991 A (Aa3)
$2,945,000 8.20% 08/01/2011 $ 3,174,327
-----------------------------------------------------------------------------------------------
$ 5,644,007
-----------------------------------------------------------------------------------------------
Wisconsin - 5.2%
Wisconsin GO Bonds Series 1992 (AA/Aa2)
$4,000,000 6.10% 05/01/2004 $ 4,221,160
Wisconsin State Health and Educational Facility RB for Medical College of
Wisconsin Series 1993 (A)
1,240,000 5.30 12/01/2003 1,256,529
-----------------------------------------------------------------------------------------------
$ 5,477,689
-----------------------------------------------------------------------------------------------
TOTAL DEBT OBLIGATIONS
(Cost $99,861,743) $ 98,513,262
-----------------------------------------------------------------------------------------------
Short-Term Obligations\/ - 7.2%
Alabama - 0.9%
Phoenix County Industrial Development Board Environmental Improvement RB
for Georgia Kraft Project Series 1985 (LOC) (P-1)
$ 900,000 3.60% 11/01/1999 $ 900,000
-----------------------------------------------------------------------------------------------
Texas - 3.2%
Grapevine Texas Industrial Development Corp. VRDN RB American Airlines-B2
Series 1984 (LOC) (Aa3)
$3,100,000 3.65% 11/01/1999 $ 3,100,000
Harris County Health Facilities Development Corp. VRDN RB St. Luke's
Episcopal Hospital Series 1997 B (SPA) (AA)
230,000 3.65 11/01/1999 230,000
-----------------------------------------------------------------------------------------------
$ 3,330,000
-----------------------------------------------------------------------------------------------
Virginia - 2.0%
Roanoke IDA Hospital VRDN RB Roanoke Memorial Hospital Series 1995 A (AA-
/Aa3)
$2,100,000 3.60% 11/01/1999 $ 2,100,000
-----------------------------------------------------------------------------------------------
Washington - 1.1%
Washington State Health Care Facilities Authority VRDN RB Virginia Mason
Medical Center Series 1997 B (AAA/Aaa)
$1,200,000 3.65% 11/01/1999 $ 1,200,000
-----------------------------------------------------------------------------------------------
TOTAL SHORT-TERM OBLIGATIONS
(Cost $7,530,000) $ 7,530,000
-----------------------------------------------------------------------------------------------
TOTAL INVESTMENTS
(Cost $107,391,743) $106,043,262
-----------------------------------------------------------------------------------------------
</TABLE>
\/ Security with "Put" features with resetting interest rates. Maturity dates
disclosed are the next interest reset dates.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of net assets.
The accompanying notes are an integral part of these financial statements.
11
<PAGE>
GOLDMAN SACHS SHORT DURATION TAX-FREE FUND
Statement of Investments (continued)
October 31, 1999
<TABLE>
-------------------------------------------------------------
<C> <S>
Investment Abbreviations:
ACA --Insured by American Capital Access
AMBAC --Insured by American Municipal Bond Assurance Corp.
COPS --Certificates of Participation
FGIC --Insured by Financial Guaranty Insurance Co.
FHA --Insured by Federal Housing Administration
FNMA --Insured by Federal National Mortgage Association
GO --General Obligation
LOC --Letter of Credit
MBIA --Insured by Municipal Bond Investors Assurance
MF Hsg. --Multi-Family Housing
PCRB --Pollution Control Revenue Bond
RB --Revenue Bond
SPA --Stand-by Purchase Agreement
VRDN --Variable Rate Demand Note
-------------------------------------------------------------
</TABLE>
Security ratings are unaudited.
The accompanying notes are an integral part of these financial statements.
12
<PAGE>
GOLDMAN SACHS MUNICIPAL INCOME FUND
Statement of Investments
October 31, 1999
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
<S> <C> <C> <C>
Debt Obligations - 95.7%
Alabama - 3.3%
Alabama Public School and College Authority RB for Capital Improvement
Series 1999 C (AA/Aa3)
$4,000,000 5.75% 07/01/2017 $ 3,933,680
----------------------------------------------------------------------------------------------
Arizona - 7.9%
Maricopa County MF Hsg. IDA RB for Place Five and Greenery Apartments
Series 1996 A (AAA)
$1,795,000 5.85% 01/01/2008 $ 1,856,138
Maricopa County United School District No. 41 RB (FSA) (AAA/Aaa)
2,500,000 6.25 07/01/2015 2,593,075
Maricopa County United School District No. 48 RB Scottsdale Project of
1997 Series 1999 D (AA/Aa2)
4,550,000 6.50 07/01/2010 5,012,735
----------------------------------------------------------------------------------------------
$ 9,461,948
----------------------------------------------------------------------------------------------
California - 2.9%
Anaheim Public Financing RB for Public Improvements Project Series 1997
C (FSA) (AAA/Aaa)@
$2,590,000 6.04% 09/01/2032 $ 344,626
Carlsbad Unified School District GO Bonds Series 1997 (FGIC) (AAA/Aaa)@
2,700,000 5.63 11/01/2014 1,148,931
Orange County Public Finance Authority Waste Management Systems RB Se-
ries 1997 (AMT) (AMBAC) (Aaa)
2,110,000 5.25 12/01/2013 2,026,064
----------------------------------------------------------------------------------------------
$ 3,519,621
----------------------------------------------------------------------------------------------
Colorado - 1.6%
Aurora Centretech Metropolitan District VRDN Series 1998 C (LOC) (A+)
$2,000,000 4.88% 12/01/2028 $ 1,922,840
----------------------------------------------------------------------------------------------
Connecticut - 0.9%
Mashantucket Western Pequot Tribe Prerefunded RB Series 1996 A
(AAA/Aaa)+
$1,000,000 6.50% 09/01/2005 $ 1,089,690
----------------------------------------------------------------------------------------------
Florida - 2.1%
Santa Rosa Bay Bridge Authority RB Series 1996 (BBB-)
$2,500,000 6.25% 07/01/2028 $ 2,490,000
----------------------------------------------------------------------------------------------
Illinois - 14.7%
Chicago Midway Airport RB Series 1996 A (MBIA) (AAA/Aaa)
$2,500,000 5.50% 01/01/2010 $ 2,519,950
Illinois Education Facilities Authority RB for Midwestern University
Series 1998 B (ACA) (A)
2,500,000 5.50 05/15/2028 2,242,525
Lake County Community Consolidated School District No. 041 GO Bonds Se-
ries 1999 A (FSA) (AAA/Aaa)
2,725,000 9.00 11/01/2016 3,602,695
Lake County Forest Preservation District GO Bonds for Land Acquisition
and Development Bonds Series 1999 (AA+/Aa1)
3,255,000 5.63 12/15/2015 3,188,240
----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
<S> <C> <C> <C>
Debt Obligations - (continued)
Illinois - (continued)
Lake County Unified School District No. 116 Round Lake GO Bonds Series
1996 (FSA) (AAA/Aaa)
$1,000,000 7.60% 02/01/2013 $ 1,174,630
2,000,000 7.60 02/01/2014 2,343,020
Lake, Cook, Kane and McHenry Counties Community Unified School District
No. 220 GO Bonds Series 1998 (FSA) (AAA/Aaa)
2,465,000 6.20 12/01/2012 2,602,325
----------------------------------------------------------------------------------------------
$17,673,385
----------------------------------------------------------------------------------------------
Indiana - 3.3%
Indiana Bond Bank for Hendricks County RB Series 1997 B (LOC) (AA-)
$1,420,000 6.00% 02/01/2012 $ 1,377,372
Indiana Transportation Finance Authority Airport Facilities RB Series
1996 A (AMBAC) (AAA/Aaa)
2,500,000 6.00 11/01/2011 2,616,775
----------------------------------------------------------------------------------------------
$ 3,994,147
----------------------------------------------------------------------------------------------
Kentucky - 0.9%
Nelson County Industrial Building RB for Mabex Universal Corp. Project
Series 1995 (AMT) (LOC) (A3)
$1,000,000 6.50% 04/01/2005 $ 1,033,610
----------------------------------------------------------------------------------------------
Louisiana - 1.6%
Orleans Levee District Public Improvement RB Series 1995 (FSA) (AAA/Aaa)
$1,845,000 5.95% 11/01/2015 $ 1,894,667
----------------------------------------------------------------------------------------------
Maine - 0.5%
Maine Educational Loan Authority RB Series 1992 A-1 (AMT) (Aaa)
$ 570,000 6.80% 12/01/2007 $ 595,872
----------------------------------------------------------------------------------------------
Michigan - 4.6%
Bishop International Airport Authority RB Series 1999 B (ACA) (A)
$1,085,000 5.25% 12/01/2012 $ 1,024,663
Michigan Higher Education Facilities RB for the Thomas M. Cooley Law
School Series 1998 (LOC) (A+)
4,000,000 5.40 05/01/2018 3,674,560
Oakland County Economic Development Corp. RB for Cranbrook Community Se-
ries 1998 (Aa2)
1,000,000 5.00 11/01/2017 882,570
----------------------------------------------------------------------------------------------
$ 5,581,793
----------------------------------------------------------------------------------------------
Missouri - 1.8%
St. Louis Municipal Finance Leasehold RB Series 1993 A (AMBAC) (AAA/Aaa)
$2,100,000 5.30% 07/15/2002 $ 2,143,197
----------------------------------------------------------------------------------------------
New Mexico - 1.6%
New Mexico Finance Authority RB for Federal Highway Grant Series 1998 A
(AMBAC) (AAA/Aaa)
$2,100,000 5.25% 09/01/2014 $ 1,981,371
----------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
14
<PAGE>
GOLDMAN SACHS MUNICIPAL INCOME FUND
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
Debt Obligations - (continued)
<S> <C> <C> <C>
New York - 11.4%
Babylon Waste Facilites GO Bonds Series 1993 (FGIC) (AAA/Aaa)
$3,500,000 9.00% 08/01/2011 $ 4,562,530
New York GO Bonds Series 1999 J (A-/A3)
2,310,000 5.00 05/15/2001 2,330,628
New York State Dormitory Authority RB for Department of Health Series
1996 (MBIA) (AAA/Aaa)
2,000,000 5.63 07/01/2012 2,013,000
New York State Dormitory Authority RB for State University Educational
Facilities Series 1998 A (MBIA) (AAA/Aaa)
5,000,000 5.25 05/15/2013 4,787,950
----------------------------------------------------------------------------------------------
$13,694,108
----------------------------------------------------------------------------------------------
North Dakota - 1.7%
Mercer County PCRB for Basin Electric & Power 2nd Series 1995-2 (AMBAC)
(AAA/Aaa)
$2,000,000 6.05% 01/01/2019 $ 2,005,360
----------------------------------------------------------------------------------------------
Ohio - 0.5%
Cuyahoga County Port Authority RB for Rock & Roll Hall of Fame Series
1997
$ 600,000 5.45% 12/01/2005 $ 592,974
----------------------------------------------------------------------------------------------
Pennsylvania - 3.9%
Pennsylvania Higher Educational Facilities RB for University of Pennsyl-
vania Health Services Series 1998 A (MBIA) (AAA/Aaa)
$2,040,000 5.38% 01/01/2014 $ 1,971,517
Pennsylvania Higher Educational Facilities RB for University of Pennsyl-
vania Series 1996 B (A/A3)
2,900,000 5.88 01/01/2015 2,763,236
----------------------------------------------------------------------------------------------
$ 4,734,753
----------------------------------------------------------------------------------------------
Tennessee - 1.1%
McMinnville Housing Authority RB for First Mortgage Series 1997 (A2)
$1,325,000 6.00% 10/01/2009 $ 1,339,761
----------------------------------------------------------------------------------------------
Texas - 10.2%
Harris County MF Hsg. RB for Windfern Apartments Series 1999 A (A)
$4,000,000 5.90% 07/01/2019 $ 3,828,040
Lago Vista Independent School District GO Bonds Series 1997 (PSF) (Aaa)
1,000,000 5.50 08/15/2027 930,170
Lubbock Health Facilities Development RB for St. Josephs Health Systems
Series 1998 (AA/Aa3)
5,000,000 5.25 07/01/2017 4,487,800
Tarrant County Health Facilities RB Series 1997 A (MBIA) (AAA/Aaa)
3,000,000 5.75 02/15/2015 2,995,950
----------------------------------------------------------------------------------------------
$12,241,960
----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
Debt Obligations - (continued)
<S> <C> <C> <C>
Washington - 14.6%
Chelan County Public Utilities District No. 001 RB for Chelan Hydro Proj-
ect Series 1997 D (AMT) (MBIA) (AAA/Aaa)
$2,500,000 6.35% 07/01/2028 $ 2,574,850
Clark County School District No. 117 Camas GO Bonds Series 1999 (FSA)
(Aaa)
2,300,000 5.50 12/01/2017 2,185,759
King County Sewer RB Series 1999-2 (FGIC) (AAA/Aaa)<>
3,965,000 6.25 01/01/2016 4,068,685
Washington GO Bonds Series 1995 C (AA+/Aa1)
3,500,000 5.90 07/01/2015 3,506,965
Washington Public Power Supply System RB for Nuclear Project No. 2 Series
1996 A (AMBAC) (AAA/Aaa)
2,500,000 5.70 07/01/2011 2,534,200
Washington Public Power Supply System RB for Nuclear Project No. 3 Series
1993 C (MBIA) (AAA/Aaa)@
7,500,000 5.88 07/01/2016 2,764,500
-----------------------------------------------------------------------------------------------
$ 17,634,959
-----------------------------------------------------------------------------------------------
Wisconsin - 4.6%
Wisconsin State GO Bonds Series 1999 C (AA/Aa2)<>
$5,380,000 6.25% 05/01/2015 $ 5,600,257
-----------------------------------------------------------------------------------------------
TOTAL DEBT OBLIGATIONS
(Cost $119,265,198) $115,159,953
-----------------------------------------------------------------------------------------------
Short-Term Obligations\/ - 6.3%
New York - 2.4%
Long Island Power Authority Electric Systems VRDN RB Series 1998-6
(AA/Aa3)
$1,400,000 3.65% 11/01/1999 $ 1,400,000
New York State Dormitory Authority VRDN RB Cornell Unversity Series 1990
B (AA/Aa2)
1,500,000 3.55 11/01/1999 1,500,000
-----------------------------------------------------------------------------------------------
$ 2,900,000
-----------------------------------------------------------------------------------------------
Texas - 1.8%
Harris County Health Facilities Development Corp. VRDN RB St. Luke's
Episcopal Hospital Series 1997 A (AA)
$2,200,000 3.65% 11/01/1999 $ 2,200,000
-----------------------------------------------------------------------------------------------
Virginia - 0.8%
Roanoke IDA Hospital VRDN RB for Carilion Health Systems Series 1997 A
(SPA) (AA-/Aa3)
$1,000,000 3.60% 11/01/1999 $ 1,000,000
-----------------------------------------------------------------------------------------------
District of Columbia - 1.3%
District of Columbia VRDN GO Bonds General Recovery Fund Series 1991 B-1
(LOC) (AA-/Aa3)
$1,550,000 3.75% 11/01/1999 $ 1,550,000
-----------------------------------------------------------------------------------------------
TOTAL SHORT-TERM OBLIGATIONS
(Cost $7,650,000) $ 7,650,000
-----------------------------------------------------------------------------------------------
TOTAL INVESTMENTS
(Cost $126,915,198) $122,809,953
-----------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
15
<PAGE>
GOLDMAN SACHS MUNICIPAL INCOME FUND
Statement of Investments (continued)
October 31, 1999
------------------------------------------------------------------------------
+ Security is exempt from registration under Rule 144A of the Securities Act
of 1933. Such security may be resold, normally to qualified institutional
buyers in transactions exempt from registration. Total market value of Rule
144A securities amounted to $1,089,690 as of October 31, 1999.
@ Security is issued with a zero coupon. The interest rate disclosed for this
security represents effective yield to maturity
<> When-issued security.
\/ Securities with "Put" features with resetting interest rates. Maturity
dates disclosed are the next interest reset dates.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of net assets.
<TABLE>
-------------------------------------------------------------
<C> <S>
Investment Abbreviations:
ACA --Insured by American Capital Access
AMBAC --Insured by American Municipal Bond Assurance Corp.
AMT --Alternative Minimum Tax
FGIC --Insured by Financial Guaranty Insurance Co.
FSA --Insured by Financial Security Assurance Co.
GO --General Obligation
IDA --Industrial Development Authority
LOC --Letter of Credit
MBIA --Insured by Municipal Bond Investors Assurance
MF Hsg. --Multi-Family Housing
PCRB --Pollution Control Revenue Bond
PSF --Guaranteed by Permanent School Fund
RB --Revenue Bond
VRDN --Variable Rate Demand Note
-------------------------------------------------------------
</TABLE>
Security ratings are unaudited.
The accompanying notes are an integral part of these financial statements.
16
<PAGE>
GOLDMAN SACHS TAX-FREE FUNDS
Statements of Assets and Liabilities
October 31, 1999
<TABLE>
<CAPTION>
Short Duration Municipal
Tax-Free Fund Income Fund
Assets:
<S> <C> <C>
Investment in securities, at value (identified
cost $107,391,743 and $126,915,198,
respectively) $106,043,262 $122,809,953
Cash 13,492 152,913
Receivables:
Investment securities sold -- 5,437,467
Interest 1,673,381 2,006,755
Fund shares sold 152,489 239,594
Reimbursement from advisor 9,941 17,890
Other assets 2,139 9,725
------------------------------------------------------------------------------
Total assets 107,894,704 130,674,297
------------------------------------------------------------------------------
Liabilities:
Payables:
Investment securities purchased 3,026,907 9,631,252
Income distribution 50,572 125,408
Fund shares repurchased 55,945 415,528
Amounts owed to affiliates 47,231 100,195
Accrued expenses and other liabilities 45,830 46,626
------------------------------------------------------------------------------
Total liabilities 3,226,485 10,319,009
------------------------------------------------------------------------------
Net Assets:
Paid-in capital 109,995,857 126,544,365
Accumulated distributions in excess of net
investment income (136,128) (39,224)
Accumulated net realized loss on investment
and futures transactions (3,843,029) (2,044,608)
Net unrealized loss on investments (1,348,481) (4,105,245)
------------------------------------------------------------------------------
NET ASSETS $104,668,219 $120,355,288
------------------------------------------------------------------------------
Net asset value, offering and redemption price
per share(a)
Class A $9.93 $14.07
Class B $9.93 $14.08
Class C $9.93 $14.08
Institutional $9.93 $14.07
Service $9.92 $14.09
------------------------------------------------------------------------------
Shares outstanding:
Class A 2,306,456 6,426,935
Class B 201,522 663,175
Class C 208,550 310,980
Institutional 7,810,472 1,150,851
Service 17,410 111
------------------------------------------------------------------------------
Total shares outstanding, $.001 par value
(unlimited number of shares authorized) 10,544,410 8,552,052
------------------------------------------------------------------------------
</TABLE>
(a) Maximum public offering price per share (NAV per share multiplied by
1.0204 and 1.0471) for Class A shares of Short Duration Tax-Free and
Municipal Income is $10.13 and $14.73, respectively. At redemption, Class B
and Class C shares may be subject to a contingent deferred sales charge,
assessed on the amount equal to the lesser of the current net asset value or
the original purchase price of the shares.
The accompanying notes are an integral part of these financial statements.
17
<PAGE>
GOLDMAN SACHS TAX-FREE FUNDS
Statements of Operations
For the Year Ended October 31, 1999
<TABLE>
<CAPTION>
Short Duration Municipal
Tax-Free Fund Income Fund
<S> <C> <C>
Investment income:
Interest $ 3,965,042 $ 5,996,912
------------------------------------------------------------------------------
Total income 3,965,042 5,996,912
------------------------------------------------------------------------------
Expenses:
Management fees 379,825 646,968
Distribution and service fees(a) 99,717 359,241
Transfer agent fees(b) 77,953 205,929
Custodian fees 61,178 71,361
Registration fees 66,926 49,590
Professional fees 65,491 52,720
Trustee fees 10,418 9,693
Administration share fees 192 --
Service share fees 6,221 7
Other 9,425 573
------------------------------------------------------------------------------
Total expenses 777,346 1,396,082
------------------------------------------------------------------------------
Less-expenses reimbursed and fees waived (259,475) (238,048)
------------------------------------------------------------------------------
Net expenses 517,871 1,158,034
------------------------------------------------------------------------------
NET INVESTMENT INCOME 3,447,171 4,838,878
------------------------------------------------------------------------------
Realized and unrealized loss on investment and
futures transactions:
Net realized loss from:
Investment transactions (188,017) (1,466,733)
Futures transactions -- (4,683)
Net change in unrealized gain on:
Investments (1,991,940) (8,955,883)
Futures -- (24,920)
------------------------------------------------------------------------------
Net realized and unrealized loss on investment
and futures transactions (2,179,957) (10,452,219)
------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS $ 1,267,214 $ (5,613,341)
------------------------------------------------------------------------------
</TABLE>
(a) Class A, Class B, and Class C of the following funds had distribution and
service fees of:
Short Duration Tax-Free Fund -- $55,585, $15,715, and $28,417, respectively.
Municipal Income Fund -- $233,311, $83,700, and $42,230, respectively.
(b) The following funds had transfer agency fees of:
Short Duration Tax-Free Fund -- $42,244, $2,986, $5,399, $26,795, $31 and
$498 for Class A, Class B, Class C, Institutional Class, Administration
Class, and Service Class, respectively.
Municipal Income Fund -- $177,316, $15,903, $8,024, $4,685, and $1 for Class
A, Class B, Class C, Institutional Class, and Service Class, respectively.
The accompanying notes are an integral part of these financial statements.
18
<PAGE>
GOLDMAN SACHS TAX-FREE FUNDS
Statements of Changes in Net Assets
For the Year Ended October 31, 1999
<TABLE>
<CAPTION>
Short Duration Municipal
Tax-Free Fund Income Fund
<S> <C> <C>
From operations:
Net investment income $ 3,447,171 $ 4,838,878
Net realized loss on investment and futures (188,017) (1,471,416)
Net change in unrealized gain on investments
and futures (1,991,940) (8,980,803)
----------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 1,267,214 (5,613,341)
----------------------------------------------------------------------------
Distributions to shareholders:
From net investment income
Class A shares (764,670) (3,988,967)
Class B shares (45,605) (294,527)
Class C shares (77,388) (148,156)
Institutional shares (2,578,390) (545,553)
Administration shares (2,735) --
Service shares (40,429) (68)
In excess of net investment income
Class A shares (27,843) (30,293)
Class B shares (1,661) (2,237)
Class C shares (2,818) (1,125)
Institutional shares (93,883) (4,143)
Administration shares (100) --
Service shares (1,472) (1)
From net realized gain on investment and
futures transactions
Class A shares -- (577,455)
Class B shares -- (47,276)
Class C shares -- (18,715)
Institutional shares -- (49,863)
Administration shares -- --
Service shares -- (10)
----------------------------------------------------------------------------
Total distributions to shareholders (3,636,994) (5,708,389)
----------------------------------------------------------------------------
From share transactions:
Proceeds from sales of shares 113,638,321 58,714,045
Reinvestment of dividends and distributions 3,252,382 4,377,689
Cost of shares repurchased (93,695,830) (38,312,817)
----------------------------------------------------------------------------
Net increase in net assets resulting from
share transactions 23,194,873 24,778,917
----------------------------------------------------------------------------
TOTAL INCREASE 20,825,093 13,457,187
----------------------------------------------------------------------------
Net assets:
Beginning of year 83,843,126 106,898,101
----------------------------------------------------------------------------
End of year $104,668,219 $120,355,288
----------------------------------------------------------------------------
Accumulated distributions in excess of net
investment income $ (136,128) $ (39,224)
----------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
19
<PAGE>
GOLDMAN SACHS TAX-FREE FUNDS
Statements of Changes in Net Assets
For the Year Ended October 31, 1998
<TABLE>
<CAPTION>
Short Duration Municipal
Tax-Free Fund Income Fund
<S> <C> <C>
From operations:
Net investment income $ 1,788,889 $ 3,571,600
Net realized gain from investment and futures
transactions 269,867 142,526
Net change in unrealized gain on investments
and futures 263,420 2,435,958
------------------------------------------------------------------------------
Net increase in net assets resulting from
operations 2,322,176 6,150,084
------------------------------------------------------------------------------
Distributions to shareholders:
From net investment income
Class A shares (420,239) (3,301,234)
Class B shares (9,424) (125,487)
Class C shares (36,571) (41,577)
Institutional shares (1,297,489) (34,610)
Administration shares (9,873) --
Service shares (70,477) (64)
From net realized gain on investment and
futures transactions
Class A shares -- (123,858)
Class B shares -- (3,541)
Class C shares -- (467)
Institutional shares -- (658)
Administration shares -- --
Service shares -- (3)
------------------------------------------------------------------------------
Total distributions to shareholders (1,844,073) (3,631,499)
------------------------------------------------------------------------------
From share transactions:
Proceeds from sales of shares 79,620,422 50,919,586
Reinvestment of dividends and distributions 1,551,849 2,344,160
Cost of shares repurchased (32,887,113) (15,670,581)
------------------------------------------------------------------------------
Net increase in net assets resulting from share
transactions 48,285,158 37,593,165
------------------------------------------------------------------------------
TOTAL INCREASE 48,763,261 40,111,750
------------------------------------------------------------------------------
Net assets:
Beginning of year 35,079,865 66,786,351
------------------------------------------------------------------------------
End of year $83,843,126 $106,898,101
------------------------------------------------------------------------------
Accumulated undistributed net investment income $ 62,046 $ 138,393
------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
20
<PAGE>
GOLDMAN SACHS TAX-FREE FUNDS
Notes to Financial Statements
October 31, 1999
1. ORGANIZATION
Goldman Sachs Trust (the "Trust") is a Delaware business trust registered un-
der the Investment Company Act of 1940 (as amended) as an open-end, manage-
ment investment company. The Trust includes the Goldman Sachs Short Duration
Tax-Free Fund (Short Duration Tax-Free) and the Goldman Sachs Municipal In-
come Fund (Municipal Income), collectively, "the Funds" or individually a
"Fund." Short Duration Tax-Free and Municipal Income are diversified portfo-
lios offering five classes of shares -- Class A, Class B, Class C, Institu-
tional and Service. On July 20, 1999, the Administration Class shares of the
Short Duration Tax-Free Fund were liquidated and are no longer offered.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Funds. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make es-
timates and assumptions that may affect the reported amounts. Actual results
could differ from those estimates.
A. Investment Valuation -- Portfolio securities for which accurate market
quotations are readily available are valued on the basis of quotations fur-
nished by a pricing service or provided by dealers in such securities. Port-
folio securities for which accurate market quotations are not readily
available are valued based on yield equivalents, pricing matrices or other
sources, under valuation procedures established by the Trust's Board of
Trustees. Short-term debt obligations maturing in sixty days or less are val-
ued at amortized cost.
B. Security Transactions and Investment Income -- Security transactions are
recorded as of the trade date. Realized gains and losses on sales of portfo-
lio securities are calculated using the identified cost basis. Interest in-
come is recorded on the basis of interest accrued. Market premiums resulting
from the purchase of long-term debt securities are amortized to interest in-
come over the life of the security with a corresponding decrease in the cost
basis of the security.
C. Federal Taxes -- It is each Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and
to distribute each year substantially all of its investment company tax-ex-
empt and taxable income and capital gains to its shareholders. Accordingly,
no federal tax provisions are required.
The characterization of distributions to shareholders for financial report-
ing purposes is determined in accordance with income tax rules. Therefore,
the source of a portfolio's distributions may be shown in the accompanying
financial statements as either from or in excess of net investment income or
net realized gain on investment transactions, or from paid-in capital, de-
pending on the type of book/tax differences that may exist.
21
<PAGE>
GOLDMAN SACHS TAX-FREE FUNDS
Notes to Financial Statements (continued)
October 31, 1999
The Short Duration Tax-Free and Municipal Income Funds, at their most re-
cent tax year-ends of October 31, 1999, had approximately the following
amount of capital loss carryforwards for U.S. federal tax purposes. These
amounts are available to be carried forward to offset future capital gains to
the extent permitted by applicable laws or regulations.
<TABLE>
<CAPTION>
Years of
Fund Amount Expiration
-------------------------------------------------------------------------------
<S> <C> <C>
Short Duration Tax-Free $3,843,000 2002-2007
-------------------------------------------------------------------------------
Municipal Income 2,045,000 2007
-------------------------------------------------------------------------------
</TABLE>
At October 31, 1999 the Funds' aggregate unrealized gains and losses based
on cost for federal income tax purposes was as follows:
<TABLE>
<CAPTION>
Tax Gross Gross Net Unrealized
Fund Cost Unrealized Gain Unrealized Loss Loss
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Short Duration
Tax-Free $107,391,743 $107,488 $(1,455,969) $(1,348,481)
------------------------------------------------------------------------------
Municipal Income 126,915,198 530,389 (4,635,634) (4,105,245)
------------------------------------------------------------------------------
</TABLE>
D. Expenses -- Expenses incurred by the Trust that do not specifically relate
to an individual Fund of the Trust are allocated to the Funds on a straight-
line or pro rata basis depending upon the nature of the expense.
Class A, Class B and Class C shareholders of the Funds bear all expenses
and fees relating to their respective Distribution and Service plans. Share-
holders of Service and Administration shares bear all expenses and fees paid
to service organizations. Each class of shares of the Funds separately bears
its respective class-specific transfer agency fees.
E. Segregation Transactions -- The Funds may enter into certain derivative
transactions to seek to increase total return. Forward foreign currency ex-
change contracts, futures contracts, written options, mortgage dollar rolls,
when-issued securities and forward commitments represent examples of such
transactions. As a result of entering into those transactions, the Funds are
required to segregate liquid assets on the accounting records equal to or
greater than the market value of the corresponding transactions.
3. AGREEMENTS
Goldman Sachs Asset Management ("GSAM"), a unit of the Investment Management
Division of Goldman, Sachs & Co. ("Goldman Sachs"), serves as each Fund's in-
vestment adviser pursuant to Investment Management Agreements (the "Agree-
ments"). Under the Agreements, GSAM, subject to the general supervision of
the Trust's Board of Trustees, manages the Funds' portfolios. As compensation
for the services rendered pursuant to the Agreements and the assumption of
the expenses related thereto and administering the Funds' business affairs,
including providing facilities, GSAM is entitled to a fee, computed daily and
payable monthly at an annual rate equal to .40% and .55% of the average daily
net assets of Short Duration Tax-Free and Municipal Income, respectively.
GSAM has voluntarily agreed to waive a portion of its management fee equal
annually to .05% of the average daily net assets of each Fund. For the year
ended October 31, 1999, GSAM waived approximately $47,000 and $59,000 of its
management fee attributable to the Short Duration Tax-Free and Municipal In-
come Funds, respectively. GSAM may discontinue or modify these waivers in the
future at its discretion.
22
<PAGE>
GOLDMAN SACHS TAX-FREE FUNDS
GSAM has voluntarily agreed to limit "Other Expenses" (excluding manage-
ment, distribution and service fees, transfer agent fees, Administration and
Service share fees, taxes, interest, brokerage, litigation, indemnification
costs and other extraordinary expenses) to the extent such expenses exceed,
on an annual basis, .00% of the average daily net assets of each Fund. For
the year ended October 31, 1999, Goldman Sachs has agreed to reimburse ap-
proximately $210,000 and $179,000 to Short Duration Tax-Free and Municipal
Income, respectively.
Goldman Sachs serves as the Distributor of shares of the Funds pursuant to
a Distribution Agreement. Goldman Sachs may receive a portion of the Class A
sales load and Class B and Class C contingent deferred sales charges and has
advised the Funds that it retained approximately $39,000 and $48,000 for the
year ended October 31, 1999 for Short Duration Tax-Free and Municipal Income,
respectively.
The Trust, on behalf of each Fund, has adopted Distribution and Service
Plans. Under the Distribution and Service Plans, Goldman Sachs and/or autho-
rized dealers are entitled to a monthly fee from each Fund for distribution
and shareholder maintenance services equal, on an annual basis, to .25%,
1.00% and 1.00% of the average daily net assets attributable to Class A,
Class B and Class C shares, respectively. Goldman Sachs has voluntarily
agreed to waive a portion of the distribution and service fees equal to .15%
of the average daily net assets attributable to the Class B shares of Short
Duration Tax-Free. For the year ended October 31, 1999, Goldman Sachs has
waived approximately $2,000 of the distribution and service fees attributable
to the Class B shares of Short Duration Tax-Free. Goldman Sachs may discon-
tinue or modify this waiver in the future at its discretion.
Goldman Sachs also serves as the Transfer Agent of the Funds for a fee.
Fees charged for such transfer agency services are calculated daily and pay-
able monthly at an annual rate as follows: .19% of the average daily net as-
sets for Class A, Class B and Class C shares and .04% of the average daily
net assets for Institutional, Service and Administration shares.
The Trust, on behalf of the Funds, has adopted Service Plans. In addition,
the Trust, on behalf of Short Duration Tax-Free, has adopted an Administra-
tion Plan. These plans allow for Administration shares and Service shares,
respectively, to compensate service organizations for providing varying lev-
els of account administration and shareholder liaison services to their cus-
tomers who are beneficial owners of such shares. The Administration and
Service Plans provide for compensation to the service organizations in an
amount up to, on an annual basis, .25% and .50%, respectively, of the average
daily net asset value of each share class. On July 21, 1999, the Administra-
tion Plan was terminated due to the liquidation of the Administration Class
shares on July 20, 1999.
At October 31, 1999, the amounts owed to affiliates were as follows (in
thousands):
<TABLE>
<CAPTION>
Distribution Transfer
Management and Service Agent
Fund Fees Fees Fees Total
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Short Duration Tax-Free $32 $ 8 $ 7 $ 47
------------------------------------------------------------------------------
Municipal Income 52 31 17 100
------------------------------------------------------------------------------
</TABLE>
23
<PAGE>
GOLDMAN SACHS TAX-FREE FUNDS
Notes to Financial Statements (continued)
October 31, 1999
4. PORTFOLIO SECURITIES TRANSACTIONS
Purchases and proceeds of sales or maturities of long-term securities for the
year ended October 31, 1999, were as follows:
<TABLE>
<CAPTION>
Sales or
Fund Purchases Maturities
-------------------------------------------------------------------------------
<S> <C> <C>
Short Duration Tax-Free $162,196,358 $129,320,295
-------------------------------------------------------------------------------
Municipal Income 99,174,878 78,401,535
-------------------------------------------------------------------------------
</TABLE>
For the year ended October 31, 1999, Municipal Income incurred commission
expenses of approximately $1,000 in connection with futures contracts entered
into with Goldman Sachs.
Futures Contracts -- The Funds may enter into futures transactions in order
to hedge against changes in interest rates, securities prices or to seek to
increase total return. Upon entering into a futures contract, the Funds are
required to deposit with a broker an amount of cash or securities equal to
the minimum "initial margin" requirement of the associated futures exchange.
Subsequent payments for futures contracts ("variation margin") are paid or
received by the Funds daily, dependent on the daily fluctuations in the value
of the contracts, and are recorded for financial reporting purposes as
unrealized gains or losses. When contracts are closed, the Funds realize a
gain or loss which is reported in the Statements of Operations.
The use of futures contracts involve, to varying degrees, elements of mar-
ket and counterparty risk which may exceed the amounts recognized in the
Statements of Assets and Liabilities. Changes in the value of the futures
contract may not directly correlate with changes in the value of the under-
lying securities. This risk may decrease the effectiveness of the Funds'
strategies and potentially result in a loss. At October 31, 1999, neither
Fund had open futures contracts.
5. LINE OF CREDIT FACILITY
The Funds participated in a $250,000,000 uncommitted, unsecured revolving
line of credit facility which was terminated on April 30, 1999. Under the
most restrictive arrangement, each Fund must have owned securities having a
market value in excess of 300% of the total bank borrowings. Effective April
30, 1999, the Funds now participate in a $250,000,000 uncommitted and a
$250,000,000 committed, unsecured revolving line of credit facility. Under
the most restrictive arrangement, each Fund must own securities having a mar-
ket value in excess of 400% of the total bank borrowings. These facilities
are to be used solely for temporary or emergency purposes. The interest rate
on borrowings is based on the Federal Funds rate. The committed facility also
requires a fee to be paid by the Funds based on the amount of the commitment
which has not been utilized. During the year ended October 31, 1999, the
Funds did not have any borrowings under any of these facilities.
6. CERTAIN RECLASSIFICATIONS
In accordance with Statement of Position 93-2, Short Duration Tax-Free has
reclassified $8,351 from distributions in excess of net investment income to
paid-in capital. Municipal Income Fund has reclassified $199 and $1,226 from
distributions in excess of net investment income to paid-in capital and accu-
mulated net realized loss, respectively.
These reclassifications have no impact on the net asset value of the Funds
and are designed to present the Fund's capital accounts on a tax basis.
24
<PAGE>
GOLDMAN SACHS TAX-FREE FUNDS
7. OTHER MATTERS (UNAUDITED)
During the year ended October 31, 1999, 100% of the distributions from net
investment income paid by Goldman Sachs Short Duration Tax-Free Fund and
Goldman Sachs Municipal Income Fund were exempt-interest dividends and as
such, are not subject to U.S. federal income tax.
8. CHANGE IN INDEPENDENT AUDITORS
On October 26, 1999 the Board of Trustees of the Funds, upon the recommenda-
tion of the Board's audit committee, determined not to retain Arthur Andersen
LLP and approved a change of the Funds' independent auditors to Ernst & Young
LLP. For the fiscal years ended October 31, 1999 and October 31, 1998, Arthur
Andersen LLP's audit reports contained no adverse opinion or disclaimer of
opinion; nor were their reports qualified or modified as to uncertainty, au-
dit scope, or accounting principles. Further, there were no disagreements be-
tween the Funds and Arthur Andersen LLP on accounting principles or
practices, financial statement disclosure or audit scope or procedure, which
if not resolved to the satisfaction of Arthur Andersen LLP would have caused
them to make reference to the disagreement in their report.
25
<PAGE>
GOLDMAN SACHS TAX-FREE FUNDS
Notes to Financial Statements (continued)
October 31, 1999
9. SUMMARY OF SHARE TRANSACTIONS
Share activity for the year ended October 31, 1999 is as follows:
<TABLE>
<CAPTION>
Short Duration Tax-Free
Fund Municipal Income Fund
-------------------------------------
Shares Dollars Shares Dollars
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Shares
Shares sold 2,642,831 $ 26,739,478 2,487,407 $ 37,239,582
Reinvestment of dividends
and distributions 60,149 606,852 236,715 3,547,213
Shares repurchased (2,348,233) (23,756,336) (2,188,230) (32,704,920)
-------------------------------------
354,747 3,589,994 535,892 8,081,875
------------------------------------------------------------------------------
Class B Shares
Shares sold 143,414 1,452,458 311,533 4,688,547
Reinvestment of dividends
and distributions 3,915 39,401 15,176 227,116
Shares repurchased (41,468) (421,907) (97,942) (1,472,016)
-------------------------------------
105,861 1,069,952 228,767 3,443,647
------------------------------------------------------------------------------
Class C Shares
Shares sold 913,925 9,182,624 200,328 3,041,377
Reinvestment of dividends
and distributions 6,945 70,046 7,806 116,917
Shares repurchased (933,863) (9,362,292) (82,108) (1,208,599)
-------------------------------------
(12,993) (109,622) 126,026 1,949,695
------------------------------------------------------------------------------
Institutional Shares
Shares sold 7,455,342 75,314,086 919,438 13,744,539
Reinvestment of dividends
and distributions 247,700 2,495,701 32,665 486,364
Shares repurchased (5,553,387) (56,277,910) (198,983) (2,927,282)
-------------------------------------
2,149,655 21,531,877 753,120 11,303,621
------------------------------------------------------------------------------
Administration Shares(a)
Shares sold 42,409 431,432 -- --
Reinvestment of dividends
and distributions 155 1,575 -- --
Shares repurchased (94,101) (956,228) -- --
-------------------------------------
(51,537) (523,221) -- --
------------------------------------------------------------------------------
Service Shares
Shares sold 51,278 518,243 -- --
Reinvestment of dividends
and distributions 3,822 38,807 5 79
Shares repurchased (289,195) (2,921,157) -- --
-------------------------------------
(234,095) (2,364,107) 5 79
------------------------------------------------------------------------------
NET INCREASE 2,311,638 $ 23,194,873 1,643,810 $ 24,778,917
------------------------------------------------------------------------------
</TABLE>
(a) Short Duration Tax-Free Administration Class shares were liquidated on
July 20, 1999.
26
<PAGE>
GOLDMAN SACHS TAX-FREE FUNDS
Share activity for the year ended October 31, 1998 is as follows:
<TABLE>
<CAPTION>
Short Duration Tax-Free Fund Municipal Income Fund
-----------------------------------------------------
Shares Dollars Shares Dollars
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Shares
Shares sold 2,956,094 $29,981,070 2,331,248 $35,680,920
Reinvestment of dividends
and distributions 36,408 369,107 144,878 2,217,736
Shares repurchased (1,439,779) (14,600,893) (890,339) (13,671,669)
-----------------------------------------------------
1,552,723 15,749,284 1,585,787 24,226,987
-------------------------------------------------------------------------------
Class B Shares
Shares sold 113,668 1,154,981 363,405 5,570,533
Reinvestment of dividends
and distributions 716 7,572 4,818 73,917
Shares repurchased (29,252) (296,080) (50,499) (771,483)
-----------------------------------------------------
85,132 866,473 317,724 4,872,967
-------------------------------------------------------------------------------
Class C Shares
Shares sold 260,602 2,643,664 236,415 3,613,212
Reinvestment of dividends
and distributions 3,289 33,332 2,421 37,200
Shares repurchased (42,508) (430,853) (62,563) (957,474)
-----------------------------------------------------
221,383 2,246,143 176,273 2,692,938
-------------------------------------------------------------------------------
Institutional Shares
Shares sold 4,094,699 41,604,670 391,005 6,054,921
Reinvestment of dividends
and distributions 105,149 1,065,181 988 15,243
Shares repurchased (1,399,986) (14,177,195) (17,697) (269,955)
-----------------------------------------------------
2,799,862 28,492,656 374,296 5,800,209
-------------------------------------------------------------------------------
Administration Shares
Shares sold 45,558 460,529 -- --
Reinvestment of dividends
and distributions 948 9,613 -- --
Shares repurchased (2,644) (26,596) -- --
-----------------------------------------------------
43,862 443,546 -- --
-------------------------------------------------------------------------------
Service Shares
Shares sold 373,021 3,775,508 -- --
Reinvestment of dividends
and distributions 6,622 67,044 4 64
Shares repurchased (331,731) (3,355,496) -- --
-----------------------------------------------------
47,912 487,056 4 64
-------------------------------------------------------------------------------
NET INCREASE 4,750,874 $48,285,158 2,454,084 $37,593,165
-------------------------------------------------------------------------------
</TABLE>
27
<PAGE>
GOLDMAN SACHS SHORT DURATION TAX-FREE FUND
Financial Highlights
Selected Data for a Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
Income (loss) from Distributions to
investment operations(a) shareholders
-------------------------- ---------------------
Net realized
and unrealized Net
Net asset gain (loss) In excess increase
value, Net on investment From net of net (decrease)
beginning investment and futures investment investment in net
of period income transactions income income asset value
FOR THE YEARS ENDED OCTOBER 31,
<S> <C> <C> <C> <C> <C> <C>
1999 - Class A
Shares $10.19 $0.34 $(0.24) $(0.34) $(0.02) $(0.26)
1999 - Class B
Shares 10.18 0.28 (0.23) (0.28) (0.02) (0.25)
1999 - Class C
Shares 10.18 0.26 (0.22) (0.26) (0.03) (0.25)
1999 - Institutional
Shares 10.18 0.38 (0.23) (0.39) (0.01) (0.25)
1999 -
Administration
Shares(f) 10.18 0.26(e) (0.12)(e) (0.27) -- (0.13)
1999 - Service Shares 10.18 0.33(e) (0.24)(e) (0.33) (0.02) (0.26)
----------------------------------------------------------------------------------------------
1998 - Class A Shares 10.08 0.36(e) 0.13(e) (0.38) -- 0.11
1998 - Class B Shares 10.08 0.30(e) 0.12(e) (0.32) -- 0.10
1998 - Class C Shares 10.07 0.28(e) 0.14(e) (0.31) -- 0.11
1998 - Institutional
Shares 10.07 0.39(e) 0.13(e) (0.41) -- 0.11
1998 - Administration
Shares 10.07 0.36(e) 0.13(e) (0.38) -- 0.11
1998 - Service Shares 10.07 0.34(e) 0.13(e) (0.36) -- 0.11
----------------------------------------------------------------------------------------------
1997 - Class A Shares
(commenced May 1) 9.94 0.20(e) 0.14(e) (0.20) -- 0.14
1997 - Class B Shares
(commenced May 1) 9.94 0.16(e) 0.14(e) (0.16) -- 0.14
1997 - Class C Shares
(commenced August 15) 10.04 0.07(e) 0.03(e) (0.07) -- 0.03
1997 - Institutional
Shares 9.96 0.42(e) 0.11(e) (0.42) -- 0.11
1997 - Administration
Shares 9.96 0.39(e) 0.11(e) (0.39) -- 0.11
1997 - Service Shares 9.97 0.37(e) 0.10(e) (0.37) -- 0.10
----------------------------------------------------------------------------------------------
1996 - Institutional
Shares 9.94 0.42(e) 0.02(e) (0.42) -- 0.02
1996 - Administration
Shares 9.94 0.39(e) 0.02(e) (0.39) -- 0.02
1996 - Service Shares 9.95 0.37(e) 0.02(e) (0.37) -- 0.02
----------------------------------------------------------------------------------------------
1995 - Institutional
Shares 9.79 0.42(e) 0.15(e) (0.42) -- 0.15
1995 - Administration
Shares 9.79 0.40(e) 0.15(e) (0.40) -- 0.15
1995 - Service Shares 9.79 0.37(e) 0.16(e) (0.37) -- 0.16
----------------------------------------------------------------------------------------------
</TABLE>
(a) Includes the balancing effect of calculating per share amounts.
(b) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all distributions, a complete redemption of the
investment at the net asset value at the end of period and no sales
charge. Total return would be reduced if a sales or redemption charge
were taken into account.
(c) Annualized.
(d) Not annualized.
(e) Calculated based on the average shares outstanding methodology.
(f) Administration Class shares were liquidated on July 20, 1999. Ending net
asset value shown as of July 20, 1999.
The accompanying notes are an integral part of these financial statements.
28
<PAGE>
GOLDMAN SACHS SHORT DURATION TAX-FREE FUND
<TABLE>
<CAPTION>
Ratios assuming no
voluntary waiver of
fees or expense
limitations
-----------------------
Net Ratio of net Ratio of net
assets Ratio of investment Ratio of investment
Net asset at end of net expenses income expenses income Portfolio
value, Total period to average to average to average to average turnover
end of period return(b) (in 000s) net assets net assets net assets net assets rate
<S> <C> <C> <C> <C> <C> <C> <C>
$ 9.93 1.00% $22,903 0.79% 3.37% 1.06% 3.10% 147.20%
9.93 0.49 2,000 1.39 2.80 1.81 2.38 147.20
9.93 0.34 2,070 1.54 2.62 1.81 2.35 147.20
9.93 1.50 77,522 0.39 3.79 0.66 3.52 147.20
10.05(f) 1.37(d) -- 0.64(c) 3.56(c) 0.91(c) 3.29(c) 147.20
9.92 0.89 173 0.89 3.23 1.16 2.96 147.20
--------------------------------------------------------------------------------------------------
10.19 4.97 19,881 0.71 3.54 1.74 2.51 140.72
10.18 4.25 974 1.31 3.06 2.27 2.10 140.72
10.18 4.19 2,256 1.46 2.82 2.27 2.01 140.72
10.18 5.25 57,647 0.45 3.92 1.26 3.11 140.72
10.18 4.99 525 0.70 3.58 1.51 2.77 140.72
10.18 4.73 2,560 0.95 3.44 1.76 2.63 140.72
--------------------------------------------------------------------------------------------------
10.08 3.39(d) 4,023 0.70(c) 3.81(c) 1.73(c) 2.78(c) 194.75
10.08 3.07(d) 106 1.30(c) 3.31(c) 2.23(c) 2.38(c) 194.75
10.07 0.97(d) 2 1.45(c) 2.60(c) 2.23(c) 1.82(c) 194.75
10.07 5.40 28,821 0.45 4.18 1.23 3.40 194.75
10.07 5.14 77 0.70 3.91 1.48 3.13 194.75
10.07 4.77 2,051 0.95 3.66 1.73 2.88 194.75
--------------------------------------------------------------------------------------------------
9.96 4.50 34,814 0.45 4.21 1.01 3.65 231.65
9.96 4.24 48 0.70 3.96 1.26 3.40 231.65
9.97 3.98 695 0.95 3.74 1.51 3.18 231.65
--------------------------------------------------------------------------------------------------
9.94 5.98 58,389 0.45 4.31 0.77 3.99 259.52
9.94 5.76 46 0.70 4.14 1.02 3.82 259.52
9.95 5.59 454 0.95 3.87 1.27 3.55 259.52
--------------------------------------------------------------------------------------------------
</TABLE>
29
<PAGE>
GOLDMAN SACHS MUNICIPAL INCOME FUND
Financial Highlights
Selected Data for a Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
Income (loss) from
investment operations(a) Distributions to shareholders
------------------------- ----------------------------------
Net realized From
and unrealized net realized Net
Net asset gain (loss) on From In excess gain on increase
value, Net investment and net of net investment (decrease)
beginning investment futures investment investment and futures in net
of period income transactions income income transactions asset value
FOR THE YEARS ENDED OCTOBER 31,
<S> <C> <C> <C> <C> <C> <C> <C>
1999 - Class A Shares $15.47 $0.63 $(1.29) $(0.65) $ -- $(0.09) $(1.40)
1999 - Class B Shares 15.47 0.51 (1.28) (0.52) (0.01) (0.09) (1.39)
1999 - Class C Shares 15.47 0.51 (1.28) (0.51) (0.02) (0.09) (1.39)
1999 - Institutional
Shares 15.47 0.70 (1.30) (0.70) (0.01) (0.09) (1.40)
1999 - Service Shares 15.48 0.65 (1.32) (0.63) -- (0.09) (1.39)
-------------------------------------------------------------------------------------------------------------
1998 - Class A Shares 14.99 0.65 0.50 (0.64) -- (0.03) 0.48
1998 - Class B Shares 15.00 0.53 0.49 (0.52) -- (0.03) 0.47
1998 - Class C Shares 14.99 0.53 0.50 (0.52) -- (0.03) 0.48
1998 - Institutional
Shares 15.00 0.68 0.50 (0.68) -- (0.03) 0.47
1998 - Service Shares 14.99 0.64 0.49 (0.61) -- (0.03) 0.49
-------------------------------------------------------------------------------------------------------------
1997 - Class A Shares 14.37 0.67 0.62 (0.67) -- -- 0.62
1997 - Class B Shares 14.37 0.56 0.63 (0.56) -- -- 0.63
1997 - Class C Shares
(commenced August 15) 14.85 0.12 0.14 (0.12) -- -- 0.14
1997 - Institutional
Shares (commenced August
15) 14.84 0.15 0.16 (0.15) -- -- 0.16
1997 - Service Shares
(commenced August 15) 14.84 0.14 0.15 (0.14) -- -- 0.15
-------------------------------------------------------------------------------------------------------------
1996 - Class A Shares 14.17 0.65 0.20 (0.65) -- -- 0.20
1996 - Class B Shares
(commenced May 1) 14.03 0.27 0.34 (0.27) -- -- 0.34
-------------------------------------------------------------------------------------------------------------
1995 - Class A Shares 13.08 0.67 1.09 (0.67) -- -- 1.09
-------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Includes the balancing effect of calculating per share amounts.
(b) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all distributions, a complete redemption of the
investment at the net asset value at the end of the period and no sales
charge. Total return would be reduced if a sales or redemption charge
were taken into account.
(c) Annualized.
(d) Not annualized.
The accompanying notes are an integral part of these financial statements.
30
<PAGE>
GOLDMAN SACHS MUNICIPAL INCOME FUND
<TABLE>
<CAPTION>
Ratios assuming no
voluntary waiver of fees
or expense limitations
--------------------------------
Ratio of net Ratio of net
Net assets Ratio of investment Ratio of investment
Net asset at end of net expenses income expenses income Portfolio
value, Total period to average to average to average to average turnover
end of period return(b) (in 000s) net assets net assets net assets net assets rate
<S> <C> <C> <C> <C> <C> <C> <C>
$14.07 (4.46)% $90,443 0.94% 4.15% 1.14% 3.95% 70.31%
14.08 (5.10) 9,334 1.69 3.40 1.89 3.20 70.31
14.08 (5.10) 4,379 1.69 3.40 1.89 3.20 70.31
14.07 (4.07) 16,197 0.54 4.58 0.74 4.38 70.31
14.09 (4.49) 2 1.04 4.35 1.24 4.15 70.31
- -----------------------------------------------------------------------------------------------------------------
15.47 7.79 91,158 0.87 4.25 1.64 3.48 56.51
15.47 6.91 6,722 1.62 3.44 2.16 2.90 56.51
15.47 6.98 2,862 1.62 3.38 2.16 2.84 56.51
15.47 8.00 6,154 0.58 4.41 1.12 3.87 56.51
15.48 7.68 2 1.08 4.21 1.62 3.67 56.51
- -----------------------------------------------------------------------------------------------------------------
14.99 9.23 64,553 0.85 4.60 1.62 3.83 153.12
15.00 8.48 1,750 1.60 3.74 2.12 3.22 153.12
14.99 1.75(d) 130 1.60(c) 3.24(c) 2.12(c) 2.72(c) 153.12
15.00 2.10(d) 351 0.60(c) 4.41(c) 1.12(c) 3.89(c) 153.12
14.99 1.93(d) 2 1.10(c) 4.24(c) 1.62(c) 3.72(c) 153.12
- -----------------------------------------------------------------------------------------------------------------
14.37 6.13 52,267 0.85 4.58 1.55 3.88 344.13
14.37 4.40(d) 255 1.60(c) 3.55(c) 2.05(c) 3.10(c) 344.13
- -----------------------------------------------------------------------------------------------------------------
14.17 13.79 53,797 0.76 4.93 1.49 4.20 335.55
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
31
<PAGE>
GOLDMAN SACHS TRUST - TAX-FREE FUNDS
Report of Independent Public Accountants
To the Shareholders and Board of Trustees of Goldman Sachs Trust -- Tax-Free
Fixed Income Funds:
We have audited the accompanying statements of assets and liabilities of
Goldman Sachs Short Duration Tax-Free Fund and Municipal Income Fund, two of
the portfolios constituting Goldman Sachs Trust -- Fixed Income Funds (a Del-
aware Business Trust), including the statements of investments, as of October
31, 1999, and the related statements of operations, the statements of changes
in net assets and the financial highlights for the periods presented. These
financial statements and the financial highlights are the responsibility of
the Funds' management. Our responsibility is to express an opinion on these
financial statements and the financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and the
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of October 31, 1999 by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements and the financial highlights
referred to above present fairly, in all material respects, the financial
position of Goldman Sachs Short Duration Tax-Free Fund and Municipal Income
Fund as of October 31, 1999, the results of their operations, the changes in
their net assets and the financial highlights for the periods presented, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
December 10, 1999
32
<PAGE>
GOLDMAN SACHS HIGH YIELD FUND
Statement of Investments
October 31, 1999
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
<S> <C> <C> <C>
Corporate Bonds - 77.1%
Aerospace - 2.8%
Argo-Tech Corp. (B-/B3)
$ 7,500,000 8.63% 10/01/2007 $ 6,337,500
Burke Industries, Inc. (B/B2)
2,000,000 10.00 08/15/2007 1,000,000
Communications Instruments, Inc. (B-/B3)
2,500,000 10.00 09/15/2004 2,075,000
Dunlop Standard Aerospace Holdings (B-/B3)+
3,000,000 11.88 05/15/2009 3,030,000
Hexcel Corp. (B+/B1)
5,000,000 9.75 01/15/2009 4,100,000
K&F Industries, Inc. (B-/B3)
5,000,000 9.25 10/15/2007 4,762,500
Transdigm, Inc. (B-/B3)
1,000,000 10.38 12/01/2008 895,000
Worldwide Flight Services (B/B3)+
750,000 12.25 08/15/2007 750,712
------------
22,950,712
------------------------------------------------------------------------------------------------
Automotive Parts - 2.9%
Accuride Corp. (B-/B2)
3,000,000 9.25 02/01/2008 2,700,000
American Axle & Manufacturing, Inc. (B/B2)
3,750,000 9.75 03/01/2009 3,693,750
Anchor Lamina, Inc. (B-/B3)
1,500,000 9.88 02/01/2008 1,305,000
Federal-Mogul Corp. (BB+/Ba2)
2,000,000 7.50 01/15/2009 1,784,360
Hayes Lemmerz International, Inc. (B/B2)
3,500,000 9.13 07/15/2007 3,342,500
JL French Automotive Castings (B-/B3)+
1,500,000 11.50 06/01/2009 1,481,250
Prestolite Electric, Inc. (B+/B3)
4,000,000 9.63 02/01/2008 3,200,000
Stanadyne Automotive Corp. (B/Caal)
4,000,000 10.25 12/15/2007 3,280,000
Venture Holdings Trust (B/B2)
4,000,000 9.50 07/01/2005 3,700,000
------------
24,486,860
------------------------------------------------------------------------------------------------
Building Materials - 2.9%
Amatek Industries, Inc. (B/B3)+
3,500,000 12.00 02/15/2008 3,255,000
Atrium Companies, Inc. (B/B3)
2,500,000 10.50 05/01/2009 2,387,500
Better Minerals & Aggregates (B-/B3)+
2,500,000 13.00 09/15/2009 2,475,000
Nortek, Inc. (B+/B1)
3,000,000 9.13 09/01/2007 2,872,500
2,125,000 8.88 08/01/2008 1,992,187
Nortek, Inc. (B-/B3)
2,000,000 9.88 03/01/2004 1,960,000
------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
<S> <C> <C> <C>
Corporate Bonds - (continued)
Building Materials - (continued)
Republic Group, Inc. (B/B2)
$ 3,000,000 9.50% 07/15/2008 $ 2,775,000
Werner Holdings Co., Inc. (B-/B2)
7,000,000 10.00 11/15/2007 6,790,000
-------------
24,507,187
----------------------------------------------------------------------------------------
Capital Goods - 3.0%
Axiohm Transaction Solutions, Inc. (CCC+/Ca)\/
3,000,000 9.75 10/01/2007 900,000
International Wire Group, Inc. (B-/B3)
4,000,000 11.75 06/01/2005 4,110,000
Packard BioScience Co. (B-/B3)
9,250,000 9.38 03/01/2007 8,371,250
Simonds Industries, Inc. (B-/B3)
750,000 10.25 07/01/2008 577,500
Thermadyne Holdings Corp. (CCC+/Caal)(S)
4,000,000 0.00/12.50 06/01/2008 1,760,000
Thermadyne Manufacturing LLC (CCC+/B3)
6,750,000 9.88 06/01/2008 5,535,000
Trench Electric S.A. (B-/B3)
5,000,000 10.25 12/15/2007 4,000,000
-------------
25,253,750
----------------------------------------------------------------------------------------
Chemicals - 4.1%
Brunner Mond PLC (CCC+/Caal)
1,000,000 11.00 07/15/2008 490,000
General Chemicals Industries (B+/B3)+
1,500,000 10.63 05/01/2009 1,458,750
Huntsman ICI Holdings LLC (B+/B2)+
2,500,000 10.13 07/01/2009 2,475,000
Huntsman ICI Holdings LLC (B+/B3)@+
3,740,000 13.08 12/31/2009 1,014,475
Lyondell Chemical Co. (BB/Ba3)
6,500,000 9.88 05/01/2007 6,500,000
Lyondell Chemical Co. (B+/B2)
2,000,000 10.88 05/01/2009 1,990,000
Polymer Group, Inc. (B/B2)
1,750,000 9.00 07/01/2007 1,680,000
3,000,000 8.75 03/01/2008 2,827,500
Sovereign Speciality Chemicals, Inc. (B-/B3)
5,500,000 9.50 08/01/2007 5,431,250
Sterling Chemicals, Inc. (BB-/B3)+
750,000 12.38 07/15/2009 727,500
Trans-Resources, Inc. (B-/B3)(S)
1,000,000 0.00/12.00 03/15/2008 500,000
ZSC Specialty Chemicals PLC (B/B2)+
9,000,000 11.00 07/01/2009 9,000,000
-------------
34,094,475
----------------------------------------------------------------------------------------
Conglomerates - 0.7%
Eagle-Picher Industries, Inc. (B-/B3)
6,750,000 9.38 03/01/2008 5,737,500
----------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
GOLDMAN SACHS HIGH YIELD FUND
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
<S> <C> <C> <C>
Corporate Bonds - (continued)
Consumer Cyclicals - 6.1%
APCOA, Inc. (B-/Caal)
$ 5,000,000 9.25% 03/15/2008 $ 4,150,000
Fisher Scientific International, Inc. (B-/B3)
13,250,000 9.00 02/01/2008 12,388,750
Intertek Finance PLC (B-/B2)
7,000,000 10.25 11/01/2006 6,545,000
MSX International, Inc. (B-/B3)
1,000,000 11.38 01/15/2008 940,000
National Equipment Services, Inc. (B/B3)
4,000,000 10.00 11/30/2004 3,920,000
United Rentals, Inc. (BB-/B1)
4,000,000 8.80 08/15/2008 3,570,000
United Rentals, Inc. (BB-/B2)
4,750,000 9.50 06/01/2008 4,488,750
Volume Services America, Inc. (B-/B3)
2,750,000 11.25 03/01/2009 2,708,750
Wesco Distribution, Inc. (B/B2)
10,000,000 9.13 06/01/2008 8,975,000
Williams Scotsman, Inc. (B-/B3)
3,000,000 9.88 06/01/2007 2,865,000
------------
50,551,250
-------------------------------------------------------------------------------------------
Consumer Products - 2.4%
Cabot Safety Corp. (B/B3)
4,000,000 12.50 07/15/2005 4,150,000
Corning Consumer Products Co. (B/B3)
7,000,000 9.63 05/01/2008 5,582,500
Generac Portable Products LLC (B-/B3)
2,000,000 11.25 07/01/2006 2,040,000
Imperial Home Decor Group (CCC+/B3)
2,000,000 11.00 03/15/2008 340,000
Polaroid Corp. (BB-/Ba3)
2,000,000 11.50 02/15/2006 2,000,000
Sealy Mattress Co. (B-/B3)
1,500,000 0.00/10.88(S) 12/15/2007 1,005,000
2,500,000 9.88 12/15/2007 2,425,000
The Scotts Co. (B+/B2)+
1,000,000 8.63 01/15/2009 950,000
United Industries Corp. (B-/B3)+
1,750,000 9.88 04/01/2009 1,566,250
------------
20,058,750
-------------------------------------------------------------------------------------------
Defense - 0.7%
Condor Systems, Inc. (B-/B3)+
2,000,000 11.88 05/01/2009 1,760,000
Newport News Shipbuilding, Inc. (B+/B1)
4,000,000 9.25 12/01/2006 4,030,000
------------
5,790,000
-------------------------------------------------------------------------------------------
Energy - 1.4%
Benton Oil & Gas Co. (B/B3)
2,250,000 9.38 11/01/2007 1,220,625
-------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
<S> <C> <C> <C>
Corporate Bonds - (continued)
Energy - (continued)
Cross Timbers Oil Co. (B/B2)
$ 2,750,000 8.75% 11/01/2009 $ 2,605,625
P&L Coal Holdings Corp. (B/B2)
4,250,000 9.63 05/15/2008 4,069,375
R&B Falcon Corp. (B+/Ba3)
500,000 6.75 04/15/2005 435,000
500,000 9.50 12/15/2008 487,500
RBF Finance Co. (BB-/Ba3)
1,000,000 11.38 03/15/2009 1,055,000
Vintage Petroleum, Inc. (B+/B1)
2,000,000 9.75 06/30/2009 2,020,000
------------
11,893,125
----------------------------------------------------------------------------------------------
Entertainment - 0.9%
Advanstar Communications, Inc. (B-/B2)
3,000,000 9.25 05/01/2008 2,793,750
Premier Parks, Inc. (B-/B3)
2,250,000 9.25 04/01/2006 2,143,125
SFX Entertainment, Inc. (B-/B3)
2,000,000 9.13 02/01/2008 1,830,000
V2 Music Holdings PLC+(S)
1,750,000 0.00/14.00 04/15/2008 424,375
------------
7,191,250
----------------------------------------------------------------------------------------------
Environmental - 1.9%
Allied Waste North America, Inc. (B+/B2)+
8,000,000 10.00 08/01/2009 6,800,000
Allied Waste North America, Inc. (BB-/Ba3)
2,500,000 7.63 01/01/2006 2,168,750
5,750,000 7.88 01/01/2009 4,844,375
The IT Group, Inc. (B+/B3)+
2,500,000 11.25 04/01/2009 2,350,000
------------
16,163,125
----------------------------------------------------------------------------------------------
Food - 4.0%
Agrilink Foods, Inc. (B-/B3)
1,500,000 11.88 11/01/2008 1,327,500
Aurora Foods, Inc. (B+/B1)
3,750,000 9.88 02/15/2007 3,796,875
1,000,000 8.75 07/01/2008 952,500
Del Monte Foods Co. (B-/Caa1)(S)
5,400,000 0.00/12.50 12/15/2007 4,104,000
Domino's, Inc. (B-/B3)
7,000,000 10.38 01/15/2009 6,370,000
Eagle Family Foods (CCC+/B3)
6,250,000 8.75 01/15/2008 4,812,500
International Home Foods, Inc. (B-/B2)
2,750,000 10.38 11/01/2006 2,818,750
Iowa Select Farms LP (CCC+/Caa1)+
2,000,000 10.75 12/01/2005 1,540,000
New World Pasta Co. (B-/B2)
1,000,000 9.25 02/15/2009 920,000
----------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
GOLDMAN SACHS HIGH YIELD FUND
Statement of Investments (continued)
October 31, 1999
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
<S> <C> <C> <C>
Corporate Bonds - (continued)
Food - (continued)
Premier International Foods PLC (B-/B3)+
$ 1,500,000 12.00% 08/01/2009 $ 1,507,500
Southern Foods Group (B/B2)
5,000,000 9.88 09/01/2007 5,175,000
------------
33,324,625
--------------------------------------------------------------------------------------------
Health Care - 1.8%
ALARIS Medical, Inc. (B-/Caa1)(S)
4,000,000 0.00/ 11.13 08/01/2008 1,700,000
Alliance Imaging, Inc. (B-/B3)
3,000,000 9.63 12/15/2005 3,270,000
Genesis Eldercare, Inc. (CCC+/B3)
2,000,000 9.00 08/01/2007 500,000
Genesis Health Ventures, Inc. (CCC+/B2)
500,000 9.25 10/01/2006 175,000
1,000,000 9.88 01/15/2009 370,000
Hudson Respiratory Care, Inc. (B-/B3)
3,000,000 9.13 04/15/2008 2,340,000
Iasis Healthcare Corp. (B-/B3)+
2,000,000 13.00 10/15/2009 2,010,000
Integrated Health Services, Inc. (CC/B2)\/
3,750,000 9.25 01/15/2008 262,500
Kinetic Concepts, Inc. (B-/B3)
5,000,000 9.63 11/01/2007 3,250,000
Universal Hospital Services, Inc. (B/B3)
1,000,000 10.25 03/01/2008 710,000
------------
14,587,500
--------------------------------------------------------------------------------------------
Home Construction - 0.1%
D.R. Horton, Inc. (BB/Ba1)
1,000,000 8.00 02/01/2009 872,500
--------------------------------------------------------------------------------------------
Insurance Companies - 0.9%
Willis Corroon Corp. (B+/Ba3)
8,500,000 9.00 02/01/2009 7,522,500
--------------------------------------------------------------------------------------------
Lodging - 0.3%
Red Roof Inns, Inc. (B+/ Ba2)
2,000,000 9.63 12/15/2003 2,050,000
--------------------------------------------------------------------------------------------
Media-Cable - 4.9%
Avalon Cable of Michigan (B-/B2)
1,000,000 9.38 12/01/2008 1,000,000
Charter Communications Holdings LLC (B+/B2)
1,000,000 8.25 04/01/2007 935,000
2,000,000 8.63 04/01/2009 1,890,000
13,250,000 0.00/9.92(S) 11/01/2011 7,817,500
Echostar DBS Corp. (B/B2)
4,000,000 9.38 02/01/2009 3,960,000
Frontiervision Holdings LP (B+/B1)(S)
5,000,000 0.00/11.88 09/15/2007 4,275,000
--------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
<S> <C> <C> <C>
Corporate Bonds - (continued)
Media-Cable - (continued)
Ono Finance PLC (CCC+/Caa1)+
$ 1,250,000 13.00% 05/01/2009 $ 1,312,500
Renaissance Media Group LLC (B-/B2)(S)
3,000,000 0.00/10.00 04/15/2008 2,092,500
Telewest Communications PLC (B+/B1)
11,500,000 0.00/11.00(S) 10/01/2007 10,479,375
5,000,000 11.25 11/01/2008 5,362,500
1,000,000 0.00/9.25+(S) 04/15/2009 607,500
United Pan-Europe Communications N.V. (B-/B2)+
1,000,000 10.88 08/01/2009 967,500
-------------
40,699,375
--------------------------------------------------------------------------------------
Media-Non Cable - 4.1%
Chancellor Media Corp. (B/B1)
2,000,000 8.13 12/15/2007 1,960,000
2,000,000 9.00 10/01/2008 2,050,000
Crown Castle International Corp. (B/B3)(S)
10,500,000 0.00/10.63 11/15/2007 7,560,000
6,000,000 0.00/10.38 05/11/2011 3,540,000
5,500,000 0.00/11.25+ 08/01/2011 3,272,500
Lin Holdings Corp. (B-/B3)(S)
4,500,000 0.00/10.00 03/01/2008 2,925,000
Pinnacle Holdings, Inc. (B/B3)(S)
6,000,000 0.00/10.00 03/15/2008 3,600,000
PX Escrow Corp. (B-/B3)(S)
1,000,000 0.00/9.63 02/01/2006 500,000
SFX Broadcasting, Inc. (B/B3)
2,000,000 10.75 05/15/2006 2,205,000
Spectrasite Holdings, Inc.(S)
3,500,000 0.00/11.25 04/15/2009 1,820,000
Young Broadcasting, Inc. (B/B2)
5,000,000 8.75 06/15/2007 4,850,000
-------------
34,282,500
--------------------------------------------------------------------------------------
Metals - 1.1%
Earle M. Jorgensen Co. (B-/B3)
3,500,000 9.50 04/01/2005 3,202,500
Haynes International, Inc. (B-/B3)
1,500,000 11.63 09/01/2004 1,305,000
Republic Technologies International (B/B3)+
2,000,000 13.75 07/15/2009 1,850,000
WHX Corp. (B-/B3)
2,500,000 10.50 04/15/2005 2,375,000
-------------
8,732,500
--------------------------------------------------------------------------------------
Packaging - 2.3%
AEP Industries, Inc. (B/B2)
3,000,000 9.88 11/15/2007 2,850,000
--------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
GOLDMAN SACHS HIGH YIELD FUND
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
<S> <C> <C> <C>
Corporate Bonds - (continued)
Packaging - (continued)
Graham Packaging Co. (B-/B3)
$ 3,500,000 8.75% 01/15/2008 $ 3,255,000
Graham Packaging Co. (B-/Caa1)(S)
2,750,000 0.00/10.75 01/15/2009 1,760,000
Printpack, Inc. (B+/B3)
3,000,000 9.88 08/15/2004 2,917,500
3,000,000 10.63 08/15/2006 2,737,500
Tekni-Plex, Inc. (B-/B3)
3,000,000 11.25 04/01/2007 3,135,000
3,000,000 9.25 03/01/2008 2,865,000
------------
19,520,000
-------------------------------------------------------------------------------------------
Paper - 3.8%
Ainsworth Lumber Co. Ltd. (B/B2)
5,000,000 12.50 07/15/2007 5,400,000
Packaging Corp. of America (B/B3)+
8,500,000 9.63 04/01/2009 8,457,500
Repap New Brunswick, Inc. (CCC+/Caa1)
1,500,000 10.63 04/15/2005 1,335,000
Riverwood International Corp. (B-/B3)
8,000,000 10.25 04/01/2006 8,000,000
Riverwood International Corp. (CCC+/Caa1)
9,000,000 10.88 04/01/2008 8,730,000
------------
31,922,500
-------------------------------------------------------------------------------------------
Publishing - 1.2%
American Lawyer Media, Inc. (B/B1)
3,500,000 9.75 12/15/2007 3,255,000
American Media, Inc. (B-/B2)
1,500,000 10.25 05/01/2009 1,458,750
Day International Group, Inc. (B-/B3)
3,250,000 9.50 03/15/2008 2,632,500
Transwestern Publishing Co. (B-/B2)
3,000,000 9.63 11/15/2007 2,880,000
------------
10,226,250
-------------------------------------------------------------------------------------------
Retailers - 0.9%
Advance Holdings Corp. (B-/Caa2)(S)
2,000,000 0.00/12.88 04/15/2009 1,080,000
Duane Reade, Inc. (B-/B3)
1,250,000 9.25 02/15/2008 1,218,750
HMV Media Group PLC (B/B3)
2,000,000 10.25 05/15/2008 1,800,000
Mattress Discounters Corp. (B+/B2)
750,000 12.63 07/15/2007 705,000
Musicland Stores Corp. (B-/B3)
3,250,000 9.00 06/15/2003 2,990,000
------------
7,793,750
-------------------------------------------------------------------------------------------
Supermarkets - 0.6%
Pathmark Stores, Inc. (CCC+/Caa1)
5,000,000 9.63 05/01/2003 4,850,000
-------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
<S> <C> <C> <C>
Corporate Bonds - (continued)
Technology - 3.2%
Asat Finance LLC (B/B1)+
$ 1,000,000 12.50% 11/01/2006 $ 997,500
Covad Communications Group, Inc. (B-/B3)
500,000 0.00/13.50(S) 03/15/2008 280,000
1,500,000 12.50 02/15/2009 1,470,000
Details, Inc. (B-/B3)
5,000,000 10.00 11/15/2005 4,500,000
1,000,000 0.00/12.50(S) 11/15/2007 505,000
Integrated Circuit Systems, Inc. (B-/B3)+
1,500,000 11.50 05/15/2009 1,440,000
Intersils Corp. (B/B3)+
1,250,000 13.25 08/15/2009 1,343,750
MCMS, Inc. (CCC+/B3)
2,000,000 9.75 03/01/2008 760,000
SCG Holding & Semiconductor Co. (B/B2)+
6,000,000 12.00 07/31/2009 6,120,000
Viasystems Group, Inc. (B-/B3)
11,500,000 9.75 06/01/2007 9,200,000
------------
26,616,250
----------------------------------------------------------------------------------------
Telecommunications - 12.2%
Allegiance Telecom, Inc. (B/B3)
1,500,000 0.00/11.75(S) 05/15/2008 1,012,500
1,000,000 12.88 05/15/2008 1,085,000
Birch Telecom, Inc.
1,000,000 14.00 06/15/2008 990,000
Carrier1 International S.A. (B-/B3)+
2,250,000 13.25 02/15/2009 2,306,250
Colt Telecom Group PLC (B/B1)(S)
5,500,000 0.00/12.00 12/15/2006 4,620,000
Econophone, Inc.
2,000,000 13.50+ 07/15/2007 2,090,000
500,000 0.00/11.00(S) 02/15/2008 295,000
Energis PLC (B/B1)+
4,500,000 9.75 06/15/2009 4,612,500
Exodus Communications, Inc. (B-)
3,000,000 11.25 07/01/2008 3,097,500
FaciliCom International, Inc.
2,250,000 10.50 01/15/2008 2,025,000
Global Crossing Holdings Ltd. (BB/Ba2)
5,250,000 9.63 05/15/2008 5,315,625
Global TeleSystems Group, Inc. (B-/Caa2)
3,000,000 9.88 02/15/2005 2,700,000
GST Equipment Funding, Inc.
2,000,000 13.25 05/01/2007 2,000,000
GST Network Funding, Inc.(S)
2,000,000 0.00/10.50 05/01/2008 950,000
GST Telecommunications, Inc.
1,000,000 12.75 11/15/2007 1,000,000
Hermes Europe Railtel B.V. (B/B3)
3,500,000 11.50 08/15/2007 3,456,250
2,500,000 10.38 01/15/2009 2,375,000
ICG Holdings, Inc. (B-/B3)(S)
5,000,000 0.00/11.63 03/15/2007 3,277,700
----------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
9
<PAGE>
GOLDMAN SACHS HIGH YIELD FUND
Statement of Investments (continued)
October 31, 1999
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
<S> <C> <C> <C>
Corporate Bonds - (continued)
Telecommunications - (continued)
Intermedia Communications, Inc. (B/B2)
$ 5,750,000 0.00/11.25%(S) 07/15/2007 $ 3,967,500
2,250,000 8.88 11/01/2007 2,013,750
1,000,000 9.50 03/01/2009 917,500
Intermedia Communications, Inc. (CCC+/B3)
1,000,000 0.00/12.25(S) 03/01/2009 540,000
Jazztel PLC (Caa2)+
750,000 14.00 04/01/2009 817,500
Level 3 Communications, Inc. (B/B3)
5,000,000 9.13 05/01/2008 4,662,500
1,000,000 0.00/10.50(S) 12/01/2008 585,000
McLeodUSA, Inc. (B+/B1)
1,000,000 0.00/10.50(S) 03/01/2007 790,000
2,000,000 9.50 11/01/2008 2,000,000
750,000 8.13 02/15/2009 693,750
Metromedia Fiber Network, Inc. (B/B2)
3,000,000 10.00 11/15/2008 2,981,250
Metronet Communications, Inc. (BBB/Baa3)
7,000,000 0.00/9.95(S) 06/15/2008 5,442,500
750,000 10.63 11/01/2008 851,250
NEXTLINK Communications, Inc. (B/B3)
2,000,000 9.63 10/01/2007 1,925,000
2,250,000 9.00 03/15/2008 2,109,375
1,500,000 10.75 06/01/2009 1,530,000
Pathnet, Inc.
1,875,000 12.25 04/15/2008 1,087,500
PSINet, Inc. (B-/B3)
3,750,000 10.00 02/15/2005 3,675,000
1,500,000 11.50 11/01/2008 1,552,500
3,750,000 11.00+ 08/01/2009 3,843,750
RSL Communications PLC (B-/B2)
2,257,000 12.25 11/15/2006 2,268,285
2,000,000 0.00/10.13(S) 03/01/2008 1,120,000
1,750,000 9.13 03/01/2008 1,487,500
2,000,000 10.50 11/15/2008 1,840,000
Splitrock Services Inc.
1,000,000 11.75 07/15/2008 912,500
Verio, Inc. (B-/B3)
1,500,000 11.25 12/01/2008 1,565,625
Viatel, Inc. (B-/B3)
1,000,000 11.50 03/15/2009 965,000
WAM!Net, Inc. (CCC+)(S)
1,250,000 0.00/13.25 03/01/2005 725,000
Williams Communications Group, Inc. (BB-/B2)
2,000,000 10.70 10/01/2007 2,080,000
3,500,000 10.88 10/01/2009 3,605,000
-----------
101,762,860
----------------------------------------------------------------------------------------
Telecommunications-Cellular - 5.4%
AirGate PCS, Inc. (Caal)(S)
1,250,000 0.00/13.50 10/01/2009 768,750
Cencall Communications Corp. (B-/B1)
750,000 10.13 01/15/2004 765,000
----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
<S> <C> <C> <C>
Corporate Bonds - (continued)
Telecommunications - Cellular - (continued)
Centennial Cellular Corp. (B-/Caal)
$ 5,000,000 10.75% 12/15/2008 $ 5,212,500
Dolphin Telecom PLC (CCC+/Caal)+(S)
3,000,000 0.00/14.00 05/15/2009 1,185,000
Esat Telecom Group PLC (B+/B3)
4,000,000 11.88 12/01/2008 4,100,000
Millicom International Cellular S.A. (B-/Caal)(S)
5,000,000 0.00/13.50 06/01/2006 3,625,000
Nextel Communications, Inc. (B-/B1)(S)
7,000,000 0.00/9.75 08/15/2004 7,140,000
3,000,000 0.00/10.65 09/15/2007 2,250,000
750,000 0.00/9.75 10/31/2007 540,000
16,000,000 0.00/9.95 02/15/2008 11,360,000
Nextel Partners, Inc. (CCC+/B3)(S)
1,000,000 0.00/14.00 02/01/2009 620,000
Orange PLC (BB-/Ba3)
4,500,000 8.00 08/01/2008 4,505,627
2,000,000 9.00+ 06/01/2009 2,070,000
Triton PCS Holdings, Inc. (CCC+/B3)(S)
1,000,000 0.00/11.00 05/01/2008 690,000
------------
44,831,877
-------------------------------------------------------------------------------------------
Textiles - 0.5%
Delta Mills, Inc. (B+/B3)
3,000,000 9.63 09/01/2007 2,250,000
Galey & Lord, Inc. (B/Caa3)
2,000,000 9.13 03/01/2008 490,000
Globe Manufacturing Corp. (B-/Caa1)
2,000,000 10.00 08/01/2008 1,060,000
------------
3,800,000
-------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS
(Cost $703,615,203) $642,072,971
-------------------------------------------------------------------------------------------
Emerging Market Debt - 4.1%
Cablevision S.A. (BB/Ba3)+
$ 1,000,000 13.75% 05/01/2009 $ 940,000
Federal Republic of Brazil (B+)
451,000 14.50 10/15/2009 466,785
Federal Republic of Brazil C-Bonds (B+/B2)o
2,476,160 8.00 04/15/2014 1,646,646
Financiera Energy Nacional (BBB-)
730,000 9.38 06/15/2006 598,600
Globo Comunicacoes Participacoes (B+/B2)
1,000,000 10.50 12/20/2006 800,000
MRS Logistica S.A. (B)+
120,000 10.63 08/15/2005 87,600
Multicanal S.A. (BB+/B1)+
1,000,000 13.13 04/15/2009 942,500
National Power Corp. (BB)
500,000 7.63 11/15/2000 500,000
-------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
10
<PAGE>
GOLDMAN SACHS HIGH YIELD FUND
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
<S> <C> <C> <C>
Emerging Market Debt - (continued)
National Republic of Bulgaria (B2)#
$ 1,980,000 6.50% 07/28/2011 $ 1,504,800
1,120,000 2.75 07/28/2012 753,200
Petroleos Mexicanos (BB/Ba2)
500,000 9.50 09/15/2027 430,000
Petroleos Mexicanos (BB/Ba1)#
1,220,000 9.28 07/15/2005 1,177,300
Poland Communications, Inc. (B+/B1)
3,950,000 9.88 11/01/2003 3,930,250
Province of Tucuman (B1)
447,858 9.45 08/01/2004 344,850
Republic of Columbia (BB+/Baa3)
1,250,000 8.63 04/01/2008 1,050,000
Republic of Korea (BBB-/Baa3)
2,020,000 8.88 04/15/2008 2,112,617
Republic of Panama (BB+/Ba1)
1,610,800 6.08# 05/10/2002 1,582,611
4,710,000 4.00# 07/17/2014 3,520,725
1,650,000 9.38 04/01/2029 1,542,750
Republic of Philippines (BB+/Ba1)
1,300,000 8.88 04/15/2008 1,257,750
2,320,000 9.50 10/21/2024 2,320,000
Republic of Poland (BBB+/Baa1)#
3,930,000 3.00 10/27/2024 2,387,475
650,000 4.00 10/27/2024 424,125
United Mexican States (BB/Ba1)
5,680,000 6.25 12/31/2019 4,217,400
-----------------------------------------------------------------------------------------
TOTAL EMERGING MARKET DEBT
(Cost $34,766,506) $34,537,984
-----------------------------------------------------------------------------------------
Foreign Debt Obligations/E/ - 10.6%
British Pound Sterling - 4.0%
Coral Group Holdings PLC+
GBP 2,066,750 13.50% 09/30/2009 $ 3,277,219
Coral Group Holdings PLC (B-/B3)
1,500,000 10.00 02/15/2009 2,415,502
IPC Magazines Group PLC (B-/B3)
3,250,000 0.00/10.75(S) 03/15/2008 1,869,139
3,750,000 9.63 03/15/2008 3,697,198
Luxfer Holdings PLC (B/B2)
1,750,000 10.13 05/01/2009 2,588,038
Polestar Corp. PLC (B/B2)
3,000,000 10.50 05/30/2008 4,485,933
Telewest Communications PLC (B+/B1)(S)+
12,750,000 0.00/9.88 04/15/2009 12,727,604
William Hill Finance PLC (B-/B3)
1,500,000 10.63 04/30/2008 2,538,743
-----------
33,599,376
-----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Principal Interest Maturity
Amount Rate Date Value
<S> <C> <C> <C>
Foreign Debt Obligations/E/ - (continued)
Euro Currency - 4.3%
BSN Financing Co., S.A. (B/B1)
EUR 7,000,000 10.25% 08/01/2009 $ 7,510,208
Dolphin Telecom PLC (Caa1)(S)
1,000,000 0.00/11.63 06/01/2008 452,296
Huntsman ICI Holdings LLC (B+/B2)
4,750,000 10.13 07/01/2009 4,996,287
Jazztel PLC (Caa2)
2,000,000 14.00 04/01/2009 2,398,218
Kappa Beheer B.V. (B/B2)+
4,000,000 0.00/12.50(S) 07/15/2009 2,408,736
6,750,000 10.63 07/15/2009 7,241,987
Ono Finance PLC (CCC+/Caa1)+
5,000,000 13.00 05/01/2009 5,548,508
PSINet, Inc. (B-/B3)+
2,000,000 11.00 08/01/2009 2,156,292
Tele1Europe B.V. (B-/Caa1)+
1,000,000 13.00 05/15/2009 1,120,220
Viatel, Inc. (B-/B3)
2,000,000 11.50 03/15/2009 2,051,107
-----------
35,883,859
-----------------------------------------------------------------------------------------
German Mark - 2.3%
Colt Telecom Group PLC (B/B1)
DEM 5,000,000 8.88 11/30/2007 2,756,237
Derby Cycle Corp. (CCC+/Caa1)
2,750,000 9.38 05/15/2008 813,426
Impress Metal Pack Holdings (B/B2)
10,000,000 9.88 05/29/2007 5,593,144
Ineos PLC (B+/B3)
9,000,000 8.63 04/30/2005 4,767,617
Sirona Dental Systems (B/B2)+
6,750,000 9.13 07/15/2008 2,722,624
Texon International PLC (B3)+
4,500,000 10.00 02/01/2008 2,081,295
-----------
18,734,343
-----------------------------------------------------------------------------------------
TOTAL FOREIGN DEBT OBLIGATIONS
(Cost $95,567,103) $88,217,578
-----------------------------------------------------------------------------------------
Repurchase Agreement - 2.1%
Joint Repurchase Agreement Account
$ 17,800,000 5.33% 11/01/1999 $17,800,000
-----------------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENT
(Cost $17,800,000) $17,800,000
-----------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
11
<PAGE>
GOLDMAN SACHS HIGH YIELD FUND
Statement of Investments (continued)
October 31, 1999
<TABLE>
<CAPTION>
Interest Maturity
Shares Rate Date Value
<S> <C> <C> <C>
Preferred Stock - 3.0%++
CSC Holdings, Inc. (B+/B2)
58,087 11.75% 10/01/2007 $ 6,389,570
71,661 11.13 04/01/2008 7,703,556
Eagle-Picher Holdings, Inc. (CCC+/Caal)
200 11.75 03/01/2008 1,060,000
Global Crossing Holdings Ltd. (B+/B1)
12,500 10.50 12/01/2008 1,325,000
Intermedia Communications, Inc.
1,300 13.50 03/31/2009 1,176,500
Nextel Communications, Inc.
1,319 11.13 02/15/2010 1,345,380
Packaging Corp. of America (B-/Caa)
36,452 12.38 04/01/2010 3,900,402
5,000 12.38 04/15/2010 535,000
River Holding Corp.
4,445 11.50 04/15/2010 300,706
ZSC Specialty Chemicals PLC (B-/B3)
40,000 16.00 07/01/2010 1,000,000
------------------------------------------------------------------------------------------
TOTAL PREFERRED STOCK
(Cost $23,050,647) $ 24,736,114
------------------------------------------------------------------------------------------
<CAPTION>
Shares Value
<S> <C> <C> <C>
Warrants* - 0.4%
Allegiance Telecom, Inc., expiring February 3, 2008
1,500 $ 12,000
Birch Telecom Inc., expiring June 15, 2008
1,000 0
Carrier1 International S.A., expiring February 15, 2009
2,250 0
Cellnet Data Systems, Inc., expiring September 15, 2007
3,000 15,000
Colt Telecom Group PLC, expiring December 31, 2006
3,500 3,139,850
Coral Group Holdings PLC, expiring September 30, 2009
2,000 329
Econophone, Inc., expiring July 15, 2007
2,000 100,000
Jazztel PLC, expiring April 1, 2009
13,750 0
Knology Holdings, Inc., expiring October 15, 2007
1,750 8,750
Ono Finance PLC, expiring May 31, 2009
6,250 0
Pathnet, Inc., expiring April 15, 2008
1,875 18,750
RSL Communications Ltd., expiring November 15, 2006
725 65,250
Splitrock Services Inc., expiring July 15, 2008
1,000 95,000
Tele1 Europe B.V., expiring May 15, 2009
1,000 0
------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares Value
<S> <C> <C> <C>
Warrants* - continued
V2 Music Holdings PLC, expiring April 15, 2008
1,750 $ 0
WAM!Net, Inc., expiring March 1, 2005
3,750 85,312
------------------------------------------------------------------------------------------
TOTAL WARRANTS
(Cost $107,500) $ 3,540,241
------------------------------------------------------------------------------------------
TOTAL INVESTMENTS
(Cost $874,906,959) $810,904,888
------------------------------------------------------------------------------------------
</TABLE>
+ Security is exempt from registration under Rule 144A of the Securities Act
of 1933. Such security may be resold, normally to qualified institutional
buyers in transactions exempt from registration. Total market value of Rule
144A securities amounted to $129,124,147 as of October 31, 1999.
(S)These securities are issued with a zero coupon or dividend rate which
increases to the stated rate at a set date in the future.
/E/The principal amount of each security is stated in the currency in which
the bond is denominated. See below.
DEM = German Mark.
EUR = Euro currency.
GBP = Great British Pound.
# Variable rate security. Coupon rate disclosed is that which is in effect at
October 31, 1999.
++Pay-in-kind securities.
* Non-income producing security.
\/Security currently in default.
@ Security is issued with a zero coupon. The interest rate disclosed for this
security represents effective yield to maturity.
o Coupon consists of 5% cash payment and 3% paid-in-kind securities.
Security ratings are unaudited.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
The accompanying notes are an integral part of these financial statements.
12
<PAGE>
GOLDMAN SACHS HIGH YIELD FUND
Statement of Assets and Liabilities
October 31, 1999
Assets:
<TABLE>
<S> <C>
Investment in securities, at value (identified cost
$874,906,959) $810,904,888
Cash, at value 163,299
Receivables:
Investment securities sold, at value 3,789,529
Interest, at value 20,490,757
Fund shares sold 1,817,898
Forward foreign currency exchange contracts, at value 2,009,322
Reimbursement from adviser 95,949
Deferred organization expenses, net 17,695
Other assets, at value 97,326
----------------------------------------------------------------------------
Total assets 839,386,663
----------------------------------------------------------------------------
Liabilities:
Payables:
Investment securities purchased, at value 2,436,795
Income distribution 1,993,111
Fund shares repurchased 619,072
Amounts owed to affiliates 752,482
Forward foreign currency exchange contracts, at value 987,560
Accrued expenses and other liabilities, at value 160,780
----------------------------------------------------------------------------
Total liabilities 6,949,800
----------------------------------------------------------------------------
Net Assets:
Paid-in capital 898,923,769
Accumulated undistributed net investment income 7,583,257
Accumulated net realized loss on investment and foreign
currency related transactions (11,109,794)
Net unrealized loss on investments and translation of assets
and liabilities denominated in foreign currencies (62,960,369)
----------------------------------------------------------------------------
NET ASSETS $832,436,863
----------------------------------------------------------------------------
Net asset value, offering and redemption price per share(a)
Class A $9.07
Class B $9.08
Class C $9.07
Institutional $9.08
Service $9.08
----------------------------------------------------------------------------
Shares outstanding:
Class A 57,822,808
Class B 4,400,539
Class C 1,111,362
Institutional 28,355,371
Service 30,861
----------------------------------------------------------------------------
Total shares outstanding, $.001 par value (unlimited number of
shares authorized) 91,720,941
----------------------------------------------------------------------------
</TABLE>
(a) Maximum public offering price per share (NAV per share multiplied by
1.0471) for Class A shares is $9.50. At redemption, Class B and Class C
shares may be subject to a contingent deferred sales charge, assessed on
the amount equal to the lesser of the current net asset value or the
original purchase price of the shares.
The accompanying notes are an integral part of these financial statements.
13
<PAGE>
GOLDMAN SACHS HIGH YIELD FUND
Statement of Operations
For the Year Ended October 31, 1999
<TABLE>
<S> <C>
Investment income:
Interest(a) $ 75,504,192
Dividends 65,260
-----------------------------------------------------------------------------
Total income 75,569,452
-----------------------------------------------------------------------------
Expenses:
Management fees 5,170,565
Distribution and service fees(b) 1,724,789
Transfer agent fees(c) 1,114,821
Custodian fees 218,676
Registration fees 212,711
Professional fees 69,852
Trustee fees 9,806
Amortization of deferred organization expenses 6,432
Service share fees 2,011
Other 70,633
-----------------------------------------------------------------------------
Total expenses 8,600,296
-----------------------------------------------------------------------------
Less -- expenses reimbursed (410,832)
-----------------------------------------------------------------------------
Net expenses 8,189,464
-----------------------------------------------------------------------------
NET INVESTMENT INCOME 67,379,988
-----------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment and foreign
currency transactions:
Net realized gain (loss) from:
Investment transactions (4,976,604)
Foreign currency related transactions 2,256,554
Net change in unrealized loss on:
Investments (24,651,870)
Translation of assets and liabilities denominated in foreign
currencies 3,552,323
-----------------------------------------------------------------------------
Net realized and unrealized loss on investment and foreign
currency transactions: (23,819,597)
-----------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 43,560,391
-----------------------------------------------------------------------------
</TABLE>
(a) Taxes withheld on interest were $15,509.
(b) Class A, Class B and Class C had distribution and service fees of
$1,245,873, $373,154 and $105,762, respectively.
(c) Class A, Class B, Class C, Institutional Class and Service Class had
transfer agent fees of $946,862, $70,899, $20,095, $76,804 and $161,
respectively.
The accompanying notes are an integral part of these financial statements.
14
<PAGE>
GOLDMAN SACHS HIGH YIELD FUND
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the For the
Year Ended Year Ended
October 31, 1999 October 31, 1998
<S> <C> <C>
From operations:
Net investment income $ 67,379,988 $ 36,398,084
Net realized loss from investment and
foreign currency related transactions (2,720,050) (6,342,487)
Net change in unrealized loss on
investments and translation of assets
and liabilities denominated in foreign
currencies (21,099,547) (40,457,626)
------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 43,560,391 (10,402,029)
------------------------------------------------------------------------------
Distributions to shareholders:
From net investment income
Class A shares (43,632,406) (29,778,924)
Class B shares (2,990,090) (1,501,311)
Class C shares (846,589) (441,110)
Institutional shares (17,700,298) (2,125,426)
Service shares (34,695) (9,368)
------------------------------------------------------------------------------
Total distributions to shareholders (65,204,078) (33,856,139)
------------------------------------------------------------------------------
From share transactions:
Proceeds from sales of shares 479,200,997 362,403,672
Reinvestment of dividends and
distributions 47,672,946 23,077,475
Cost of shares repurchased (210,201,224) (141,829,404)
------------------------------------------------------------------------------
Net increase in net assets resulting
from share transactions 316,672,719 243,651,743
------------------------------------------------------------------------------
TOTAL INCREASE 295,029,032 199,393,575
------------------------------------------------------------------------------
Net assets:
Beginning of year 537,407,831 338,014,256
------------------------------------------------------------------------------
End of year $ 832,436,863 $537,407,831
------------------------------------------------------------------------------
Accumulated undistributed net investment
income $ 7,583,257 $ 2,593,628
------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
15
<PAGE>
GOLDMAN SACHS HIGH YIELD FUND
Notes to Financial Statements
October 31, 1999
1. ORGANIZATION
Goldman Sachs Trust (the "Trust") is a Delaware business trust registered un-
der the Investment Company Act of 1940 (as amended) as an open-end, manage-
ment investment company. The Trust includes the Goldman Sachs High Yield Fund
(the "Fund"). The Fund is a diversified portfolio offering five classes of
shares -- Class A, Class B, Class C, Institutional and Service.
The Fund invests primarily in non-investment grade fixed-income securities
which are considered predominantly speculative by traditional investment
standards. In some cases, these obligations may be highly speculative and
have poor prospects for reaching investment grade standing. Non-investment
grade fixed-income securities and unrated securities of comparable credit
quality (commonly known as "junk bonds") are subject to the increased risk of
an issuer's inability to meet principal and interest obligations. These secu-
rities, also referred to as high yield securities, may be subject to greater
price volatility due to such factors as specific corporate developments, in-
terest rate sensitivity, negative perceptions of the junk bond markets gener-
ally and less secondary market liquidity.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make es-
timates and assumptions that may affect the reported amounts. Actual results
could differ from those estimates.
A. Investment Valuation -- Portfolio securities for which accurate market
quotations are readily available are valued on the basis of quotations fur-
nished by a pricing service or provided by dealers in such securities. Port-
folio securities for which accurate market quotations are not readily
available are valued based on yield equivalents, pricing matrices or other
sources, under valuation procedures established by the Trust's Board of
Trustees. Short-term debt obligations maturing in sixty days or less are val-
ued at amortized cost.
B. Security Transactions and Investment Income -- Security transactions are
recorded as of the trade date. Realized gains and losses on sales of portfo-
lio securities are calculated using the identified cost basis. Interest in-
come is recorded on the basis of interest accrued. Market discounts and
market premiums on debt securities, other than mortgage backed securities,
are amortized to interest income over the life of the security with a corre-
sponding adjustment in the cost basis of that security.
16
<PAGE>
GOLDMAN SACHS HIGH YIELD FUND
C. Federal Taxes -- It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and
to distribute each year substantially all of its investment company taxable
income and capital gains to its shareholders. Accordingly, no federal tax
provision is required.
The characterization of distributions to shareholders for financial report-
ing purposes is determined in accordance with income tax rules. Therefore,
the source of the portfolio's distributions may be shown in the accompanying
financial statements as either from or in excess of net investment income or
net realized gain on investment transactions, or from paid-in capital, de-
pending on the type of book/tax differences that may exist.
The Fund, at its most recent tax year-end of October 31, 1999 had approxi-
mately $10,760,000 capital loss carryforwards expiring in 2006 and 2007 for
U.S. federal tax purposes. This amount is available to be carried forward to
offset future capital gains to the extent permitted by applicable laws or
regulations.
At October 31, 1999 the aggregate cost of portfolio securities for federal
income tax purposes is $874,940,065. Accordingly, the gross unrealized gain
on investments was $10,807,276 and the gross unrealized loss on investments
was $74,842,453 resulting in a net unrealized loss of $64,035,177.
D. Expenses -- Expenses incurred by the Trust that do not specifically relate
to an individual Fund of the Trust are allocated to the funds on a straight-
line or pro rata basis depending upon the nature of the expense.
Class A, Class B and Class C shareholders of the Fund bear all expenses and
fees relating to their respective Distribution and Service Plans. Sharehold-
ers of Service shares bear all expenses and fees paid to service organiza-
tions. Each class of shares separately bears its respective class-specific
transfer agency fees.
E. Deferred Organization Expenses -- Organization-related costs are amortized
on a straight-line basis over a period of five years.
F. Foreign Currency Translations -- The books and records of the Fund are
maintained in U.S. dollars. Amounts denominated in foreign currencies are
translated into U.S. dollars on the following basis (i) investment valua-
tions, foreign currency and other assets and liabilities initially expressed
in foreign currencies are converted each business day into U.S. dollars based
upon current exchange rates; (ii) purchases and sales of foreign investments,
income and expenses are converted into U.S. dollars based upon currency ex-
change rates prevailing on the respective dates of such transactions.
Net realized and unrealized gain (loss) on foreign currency transactions
will represent: (i) foreign exchange gains and losses from the sale and hold-
ings of foreign currencies and sale of investments; (ii) gains and losses be-
tween trade date and settlement date on investment securities transactions
and forward exchange contracts; and (iii) gains and losses from the differ-
ence between amounts of dividends, interest and foreign withholding taxes re-
corded and the amounts actually received.
G. Segregation Transactions -- The Fund may enter into certain derivative
transactions to seek to increase total return. Forward foreign currency ex-
change contracts, futures contracts, written options, mortgage dollar rolls,
when-issued securities and forward commitments represent examples of such
transactions. As a result of entering into those transactions, the Fund is
required to segregate liquid assets on the accounting records equal to or
greater than the market value of the corresponding transactions.
17
<PAGE>
GOLDMAN SACHS HIGH YIELD FUND
Notes to Financial Statements (continued)
October 31, 1999
3. AGREEMENTS
Goldman Sachs Asset Management ("GSAM"), a separate operating division of
Goldman, Sachs & Co. ("Goldman Sachs"), serves as the Fund's investment ad-
viser pursuant to an Investment Management Agreement (the "Agreement"). Under
the Agreement, GSAM, subject to the general supervision of the Trust's Board
of Trustees, manages the Fund's portfolio. As compensation for the services
rendered pursuant to the Agreement, the assumption of the expenses related
thereto and administering the Fund's business affairs, including providing
facilities, GSAM is entitled to a fee, computed daily and payable monthly at
an annual rate equal to .70% of the average daily net assets of the Fund.
GSAM has voluntarily agreed to limit "Other Expenses" for the Fund (exclud-
ing management fees, Service share fees, distribution and services fees, tax-
es, interest, brokerage, litigation, indemnification costs, transfer agent
fees and other extraordinary expenses) to the extent such expenses exceeded
..02% of the average daily net assets of the Fund. For the year ended October
31, 1999, Goldman Sachs has agreed to reimburse approximately $411,000.
Goldman Sachs serves as the Distributor of shares of the Funds pursuant to
a Distribution Agreement. Goldman Sachs may receive a portion of the Class A
sales load and Class B and Class C contingent deferred sales charges and has
advised the Fund that it retained approximately $1,151,000 for the year ended
October 31, 1999.
The Trust, on behalf of the Fund, has adopted Distribution and Service
Plans. Under the Distribution and Service Plans, Goldman Sachs and or autho-
rized dealers are entitled to a monthly fee for distribution and shareholder
maintenance services equal, on an annual basis, to .25%, 1.00% and 1.00% of
the average daily net assets attributable to Class A, Class B and Class C
shares, respectively.
Goldman Sachs also serves as the Transfer Agent of the Fund for a fee. Fees
charged for such transfer agency services are calculated daily and payable
monthly at an annual rate as follows: .19% of average daily net assets for
Class A, Class B and Class C shares and .04% of average daily net assets for
Institutional and Service Class shares.
The Trust, on behalf of the Fund, has adopted a Service Plan. This plan al-
lows for Service shares to compensate service organizations for providing va-
rying levels of account administration and shareholder liaison services to
their customers who are beneficial owners of such shares. The Service Plan
provides for compensation to the service organizations in an amount up to
..50% (on an annualized basis), of the average daily net asset value of the
Service shares.
At October 31, 1999, the Fund owed approximately $496,000, $154,000 and
$102,000 for Management, Distribution and Service and Transfer Agent Fees,
respectively.
18
<PAGE>
GOLDMAN SACHS HIGH YIELD FUND
4. PORTFOLIO SECURITIES TRANSACTIONS
Purchase and proceeds of sales or maturities of long-term securities for the
year ended October 31, 1999, were $727,241,047 and $408,078,351, respective-
ly.
Forward Foreign Currency Exchange Contracts -- The Fund may enter into for-
ward foreign currency exchange contracts for the purchase or sale of a spe-
cific foreign currency at a fixed price on a future date as a hedge or cross-
hedge against either specific transactions or portfolio positions. The Fund
may also purchase and sell forward contracts to seek to increase total re-
turn. All commitments are "marked-to-market" daily at the applicable transla-
tion rates and any resulting unrealized gains or losses are recorded in the
Fund's financial statements. The Fund records realized gains or losses at the
time the forward contract is offset by entry into a closing transaction or
extinguished by delivery of the currency. Risks may arise upon entering into
these contracts from the potential inability of counterparties to meet the
terms of their contracts and from unanticipated movements in the value of a
foreign currency relative to the U.S. dollar.
At October 31, 1999, the Fund had outstanding forward foreign currency ex-
change contracts as follows:
<TABLE>
<CAPTION>
Open Foreign
Currency Value on Unrealized Unrealized
Purchase Contracts Settlement Date Current Value Gain Loss
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Euro Currency
expiring 11/1/1999 $1,510,687 $1,350,914 $ -- $159,773
expiring 11/15/1999 1,041,717 1,050,798 9,081 --
expiring 11/15/1999 662,779 650,022 -- 12,757
expiring 12/15/1999 89,128 89,687 559 --
expiring 1/18/2000 46,996 47,428 432 --
---------------------------------------------------------------------------
TOTAL OPEN FOREIGN
CURRENCY PURCHASE
CONTRACTS $3,351,307 $3,188,849 $10,072 $172,530
---------------------------------------------------------------------------
</TABLE>
19
<PAGE>
GOLDMAN SACHS HIGH YIELD FUND
Notes to Financial Statements (continued)
October 31, 1999
<TABLE>
<CAPTION>
Open Foreign Currency Value on Unrealized Unrealized
Sale Contracts Settlement Date Current Value Gain Loss
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
British Pound
expiring 11/1/1999 $ 286,566 $ 294,314 $ -- $ 7,748
expiring 11/30/1999 252,236 258,818 -- 6,582
expiring 2/15/2000 120,075 123,307 -- 3,232
expiring 3/15/2000 2,778,522 2,834,478 -- 55,956
expiring 5/2/2000 2,812,072 2,872,962 -- 60,890
expiring 5/30/2000 252,614 258,784 -- 6,170
expiring 6/30/2000 3,782,710 3,868,367 -- 85,657
expiring 8/15/2000 2,527,088 2,585,583 -- 58,495
expiring 9/15/2000 5,174,941 5,219,351 -- 44,410
expiring 10/18/2000 14,808,258 15,059,327 -- 251,069
expiring 11/1/2000 2,937,154 3,015,705 -- 78,551
expiring 11/30/2000 5,069,366 5,176,679 -- 107,313
Euro Currency
expiring 11/29/1999 186,717 186,269 448 --
expiring 11/30/1999 119,872 119,586 286 --
expiring 12/15/1999 89,720 89,687 33 --
expiring 12/30/1999 253,269 254,161 -- 892
expiring 1/18/2000 270,576 268,605 1,971 --
expiring 2/1/2000 625,436 615,060 10,376 --
expiring 3/15/2000 885,768 844,413 41,355 --
expiring 4/3/2000 154,441 148,883 5,558 --
expiring 5/2/2000 352,931 346,252 6,679 --
expiring 5/15/2000 71,052 69,307 1,745 --
expiring 5/30/2000 311,069 309,677 1,392 --
expiring 6/1/2000 670,267 642,566 27,701 --
expiring 6/30/2000 256,268 257,138 -- 870
expiring 7/17/2000 344,431 341,209 3,222 --
expiring 7/18/2000 43,561 42,654 907 --
expiring 8/1/2000 637,013 625,511 11,502 --
expiring 9/15/2000 2,445,799 2,334,340 111,459 --
expiring 10/2/2000 2,389,952 2,301,877 88,075 --
expiring 11/1/2000 5,871,132 5,737,386 133,746 --
expiring 11/15/2000 1,179,914 1,148,336 31,578 --
expiring 11/29/2000 4,282,145 4,245,782 36,363 --
expiring 11/30/2000 2,905,922 2,881,133 24,789 --
expiring 12/29/2000 5,395,695 5,393,667 2,028 --
expiring 1/16/2001 10,009,208 9,857,266 151,942 --
expiring 2/1/2001 12,873,209 12,619,129 254,080 --
German Mark
expiring 11/1/1999 7,147,403 6,733,353 414,050 --
expiring 11/15/1999 3,543,714 3,198,179 345,535 --
expiring 11/29/1999 1,869,812 1,791,695 78,117 --
expiring 1/18/2000 4,141,602 3,960,351 181,251 --
--------------------------------------------------------------------------
TOTAL OPEN FOREIGN
CURRENCY SALE
CONTRACTS $110,129,500 $108,931,147 $1,966,188 $767,835
--------------------------------------------------------------------------
</TABLE>
20
<PAGE>
GOLDMAN SACHS HIGH YIELD FUND
<TABLE>
<CAPTION>
Closed but Unsettled Realized Realized
Forward Currency Contracts Purchase Value Sale Value Gain Loss
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Euro Currency
expiring 11/1/1999 $ 371,741 $ 338,661 $ -- $33,080
expiring 11/4/1999 4,180,327 4,188,450 8,123 --
expiring 11/15/1999 66,729 68,915 2,186 --
expiring 1/18/2000 93,154 95,620 2,466 --
expiring 2/1/2000 40,661 40,080 -- 581
expiring 6/15/2000 91,871 92,582 711 --
expiring 8/1/2000 42,104 41,501 -- 603
expiring 12/15/2000 1,976,304 1,995,880 19,576 --
expiring 2/1/20001 873,904 860,973 -- 12,931
-----------------------------------------------------------------------
TOTAL CLOSED BUT UNSETTLED
FORWARD CURRENCY CONTRACTS $7,736,795 $7,722,662 $33,062 $47,195
-----------------------------------------------------------------------
</TABLE>
The contractual amounts of forward foreign currency exchange contracts do
not necessarily represent the amounts potentially subject to risk. The mea-
surement of the risks associated with these instruments is meaningful only
when all related and offsetting transactions are considered. At October 31,
1999, the Fund had sufficient cash and/or securities to cover any commitments
under these contracts.
The Fund has recorded a "Receivable for forward foreign currency exchange
contracts" and "Payable for forward foreign currency exchange contracts" re-
sulting from "open" and "closed but unsettled" forward foreign currency ex-
change contracts of $2,009,322 and $987,560, respectively, in the
accompanying Statement of Assets and Liabilities.
Futures Contracts -- The Fund may enter into futures transactions to hedge
against changes in interest rates, securities prices, currency exchange rates
or to seek to increase total return. Upon entering into a futures contract,
the Fund is required to deposit with a broker an amount of cash or securities
equal to the minimum "initial margin" requirement of the associated futures
exchange. Subsequent payments for futures contracts ("variation margin") are
paid or received by the Fund daily, dependent on the daily fluctuations in
the value of the contracts, and are recorded for financial reporting purposes
as unrealized gains or losses. When contracts are closed, the Fund realizes a
gain or loss which is reported in the Statement of Operations.
The use of futures contracts involve, to varying degrees, elements of mar-
ket and counterparty risk which may exceed the amounts recognized in the
Statement of Assets and Liabilities. Changes in the value of the futures con-
tract may not directly correlate with changes in the value of the underlying
securities. This risk may decrease the effectiveness of the Fund's strategies
and potentially result in a loss. At October 31, 1999, the fund had no open
futures contracts.
21
<PAGE>
GOLDMAN SACHS HIGH YIELD FUND
Notes to Financial Statements (continued)
October 31, 1999
5. REPURCHASE AGREEMENTS
During the term of a repurchase agreement, the value of the underlying secu-
rities, including accrued interest, is required to equal or exceed the value
of the repurchase agreement. The underlying securities for all repurchase
agreements are held in safekeeping by a bank custodian.
6. JOINT REPURCHASE AGREEMENT ACCOUNT
The Fund, together with other registered investment companies having manage-
ment agreements with GSAM, transfers uninvested cash into joint accounts, the
daily aggregate balance of which is invested in one or more repurchase agree-
ments. At October 31, 1999, the Fund had an undivided interest in the repur-
chase agreement in the following joint account which equaled $17,800,000 in
principal amount. At October 31, 1999, the following repurchase agreements
held in this joint account were fully collateralized by Federal Agency obli-
gations.
<TABLE>
<CAPTION>
Principal Interest Maturity Amortized
Repurchase Agreements Amounts Rate Date Cost
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ABN/AMRO, Inc. $ 420,000,000 5.33% 11/01/1999 $ 420,000,000
------------------------------------------------------------------------------
Bear Stearns Companies,
Inc. 200,000,000 5.33 11/01/1999 200,000,000
------------------------------------------------------------------------------
Deutsche Morgan Grenfell 318,700,000 5.33 11/01/1999 318,700,000
------------------------------------------------------------------------------
Banc of America Securities 1,000,000,000 5.33 11/01/1999 1,000,000,000
------------------------------------------------------------------------------
SG Cowen Securities 400,000,000 5.33 11/01/1999 400,000,000
------------------------------------------------------------------------------
TOTAL JOINT REPURCHASE AGREEMENT ACCOUNT $2,338,700,000
------------------------------------------------------------------------------
</TABLE>
7. LINE OF CREDIT FACILITY
The Fund participated in a $250,000,000 uncommitted and a $50,000,000 commit-
ted, unsecured revolving line of credit facility which was terminated on
April 30, 1999. Under the most restrictive arrangement, the Fund must have
owned securities having a market value in excess of 300% of the total bank
borrowings. Effective April 30, 1999, the Fund now participates in a
$250,000,000 uncommitted and a $250,000,000 committed, unsecured revolving
line of credit facility. Under the most restrictive arrangement, the Fund
must own securities having a market value in excess of 400% of the total bank
borrowings. These facilities are to be used solely for temporary or emergency
purposes. The interest rate on borrowings is based on the federal funds rate.
The committed facility also requires a fee to be paid by the Fund based on
the amount of the commitment which has not been utilized. During the year
ended October 31, 1999, the Fund did not have any borrowings under any of
these facilities.
22
<PAGE>
GOLDMAN SACHS HIGH YIELD FUND
8. CERTAIN RECLASSIFICATIONS
In accordance with Statement of Position 93-2, the Fund has reclassified
$2,647,865 and $165,854 from accumulated net realized loss and paid-in capi-
tal, respectively, to accumulated undistributed net investment income. These
reclassifications have no impact on the net asset value of the Fund and are
designed to present the Fund's capital accounts on a tax basis.
9. CHANGE IN INDEPENDENT AUDITOR
On October 26, 1999 the Board of Trustees of the Fund, upon the recommenda-
tion of the Board's audit committee, determined not to retain Arthur Andersen
LLP and approved a change of the Fund's independent auditors to Ernst & Young
LLP. For the fiscal years ended October 31, 1999 and October 31, 1998, Arthur
Andersen LLP audit reports contained no adverse opinion or disclaimer of
opinion; nor were their reports qualified or modified as to uncertainty, au-
dit scope, or accounting principles. Further, there were no disagreements be-
tween the Fund and Arthur Andersen LLP on accounting principles or practices,
financial statement disclosure or audit scope or procedure, which if not re-
solved to the satisfaction of Arthur Andersen LLP would have caused them to
make reference to the disagreement in their report.
23
<PAGE>
GOLDMAN SACHS HIGH YIELD FUND
Notes to Financial Statements (continued)
October 31, 1999
10. SUMMARY OF SHARE TRANSACTIONS
Share activity is as follows:
<TABLE>
<CAPTION>
For the Year Ended
October 31, 1999
--------------------------
Shares Dollars
-------------------------------------------------------------------------
<S> <C> <C>
Class A Shares
Shares sold 25,318,440 $ 241,274,515
Reinvestment of dividends and distributions 3,487,785 33,178,138
Shares repurchased (14,816,674) (141,291,530)
--------------------------
13,989,551 133,161,123
-------------------------------------------------------------------------
Class B Shares
Shares sold 2,175,067 20,848,416
Reinvestment of dividends and distributions 176,076 1,642,893
Shares repurchased (1,143,028) (10,841,667)
--------------------------
1,208,115 11,649,642
-------------------------------------------------------------------------
Class C Shares
Shares sold 1,321,781 12,726,945
Reinvestment of dividends and distributions 54,662 520,094
Shares repurchased (1,196,698) (11,389,250)
--------------------------
179,745 1,857,789
-------------------------------------------------------------------------
Institutional Shares
Shares sold 21,248,263 204,157,121
Reinvestment of dividends and distributions 1,299,004 12,317,045
Shares repurchased (4,829,091) (46,289,669)
--------------------------
17,718,176 170,184,497
-------------------------------------------------------------------------
Service Shares
Shares sold 20,193 194,000
Reinvestment of dividends and distributions 1,518 14,776
Shares repurchased (39,586) (389,108)
--------------------------
(17,875) (180,332)
-------------------------------------------------------------------------
NET INCREASE 33,077,712 $ 316,672,719
-------------------------------------------------------------------------
</TABLE>
24
<PAGE>
GOLDMAN SACHS HIGH YIELD FUND
<TABLE>
<CAPTION>
For the Year Ended
October 31, 1998
--------------------------
Shares Dollars
-------------------------------------------------------------------------
<S> <C> <C>
Class A Shares
Shares sold 20,547,277 $ 201,740,256
Reinvestment of dividends and distributions 2,130,085 21,255,656
Shares repurchased (11,530,271) (111,870,637)
--------------------------
11,147,091 111,125,275
-------------------------------------------------------------------------
Class B Shares
Shares sold 2,759,954 27,841,336
Reinvestment of dividends and distributions 81,407 806,446
Shares repurchased (682,765) (6,734,611)
--------------------------
2,158,596 21,913,171
-------------------------------------------------------------------------
Class C Shares
Shares sold 1,861,343 18,919,754
Reinvestment of dividends and distributions 29,086 287,624
Shares repurchased (1,138,437) (11,521,691)
--------------------------
751,992 7,685,687
-------------------------------------------------------------------------
Institutional Shares
Shares sold 11,706,944 113,387,326
Reinvestment of dividends and distributions 75,487 720,684
Shares repurchased (1,145,389) (11,673,396)
--------------------------
10,637,042 102,434,614
-------------------------------------------------------------------------
Service Shares
Shares sold 51,049 515,000
Reinvestment of dividends and distributions 743 7,065
Shares repurchased (3,209) (29,069)
--------------------------
48,583 492,996
-------------------------------------------------------------------------
NET INCREASE 24,743,304 $ 243,651,743
-------------------------------------------------------------------------
</TABLE>
25
<PAGE>
GOLDMAN SACHS HIGH YIELD FUND
Financial Highlights
Selected Data for a Share Outstanding Throughout Each Period
<TABLE>
<CAPTION>
Income (loss) from
investment operations(a) Distributions to shareholders
-------------------------------- --------------------------------
Net realized
and unrealized
Net asset gain (loss) on
value, Net investment and From In excess of Net decrease
beginning investment foreign currency net investment net investment in net
of period income related transactions income income asset value
FOR THE YEARS ENDED OCTOBER 31,
<S> <C> <C> <C> <C> <C> <C>
1999 - Class A Shares $ 9.16 $0.85 $(0.10) $ (0.84) $ -- $(0.09)
1999 - Class B Shares 9.16 0.77 (0.09) (0.76) -- (0.08)
1999 - Class C Shares 9.16 0.78 (0.11) (0.76) -- (0.09)
1999 - Institutional
Shares 9.17 0.90(e) (0.12)(e) (0.87) -- (0.09)
1999 - Service Shares 9.17 0.86(e) (0.12)(e) (0.83) -- (0.09)
-------------------------------------------------------------------------------------------------------------------
1998 - Class A Shares 9.97 0.82 (0.85) (0.78) -- (0.81)
1998 - Class B Shares 9.97 0.75 (0.86) (0.70) -- (0.81)
1998 - Class C Shares 9.97 0.75 (0.86) (0.70) -- (0.81)
1998 - Institutional
Shares 9.97 0.84 (0.83) (0.81) -- (0.80)
1998 - Service Shares 9.97 0.80 (0.84) (0.76) -- (0.80)
FOR THE PERIOD ENDED OCTOBER 31,
1997 - Class A Shares
(commenced August 1) 10.00 0.17 (0.02) (0.17) (0.01) (0.03)
1997 - Class B Shares
(commenced August 1) 10.00 0.15 (0.02) (0.15) (0.01) (0.03)
1997 - Class C Shares
(commenced August 15) 9.97 0.14 0.01 (0.14) (0.01) --
1997 - Institutional
Shares (commenced Au-
gust 1) 10.00 0.18 (0.02) (0.18) (0.01) (0.03)
1997 - Service Shares
(commenced August 1) 10.00 0.17 (0.02) (0.17) (0.01) (0.03)
-------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Includes the balancing effect of calculating per share amounts.
(b) Assumes investment at the net asset value at the beginning of the period,
reinvestment of all distributions, a complete redemption of the
investment at the net asset value at the end of period and no sales
charge. Total return would be reduced if a sales or redemption charge was
taken into account.
(c) Annualized.
(d) Not annualized.
(e) Calculated based on the average shares outstanding methodology.
The accompanying notes are an integral part of these financial statements.
26
<PAGE>
GOLDMAN SACHS HIGH YIELD FUND
<TABLE>
<CAPTION>
Ratios assuming
no expense limitations
--------------------------
Ratio of Ratio of
Net assets Ratio of net investment Ratio of net investment
Net asset at end of net expenses income expenses to income Portfolio
value, end Total period to average to average average to average turnover
of period return(b) (in 000s) net assets net assets net assets net assets rate
<S> <C> <C> <C> <C> <C> <C> <C>
$9.07 8.06% $524,674 1.16% 9.06% 1.22% 9.00% 59.04%
9.08 7.38 39,907 1.91 8.30 1.97 8.24 59.04
9.07 7.26 10,078 1.91 8.26 1.97 8.20 59.04
9.08 8.49 257,498 0.76 9.50 0.82 9.44 59.04
9.08 7.95 280 1.26 8.92 1.32 8.86 59.04
- ------------------------------------------------------------------------------------------------------
9.16 (0.70) 401,626 1.09 8.25 1.36 7.98 113.44
9.16 (1.43) 29,256 1.84 7.61 1.88 7.57 113.44
9.16 (1.43) 8,532 1.84 7.61 1.88 7.57 113.44
9.17 (0.32) 97,547 0.84 9.47 0.88 9.43 113.44
9.17 (0.79) 447 1.34 9.17 1.38 9.13 113.44
9.97 1.50(d) 325,911 0.95(c) 7.06(c) 1.57(c) 6.44(c) 44.80(d)
9.97 1.31(d) 10,308 1.70(c) 6.28(c) 2.07(c) 5.91(c) 44.80(d)
9.97 1.46(d) 1,791 1.70(c) 6.17(c) 2.07(c) 5.80(c) 44.80(d)
9.97 1.58(d) 2 0.70(c) 7.16(c) 1.07(c) 6.79(c) 44.80(d)
9.97 1.46(d) 2 1.20(c) 6.69(c) 1.57(c) 6.32(c) 44.80(d)
- ------------------------------------------------------------------------------------------------------
</TABLE>
27
<PAGE>
GOLDMAN SACHS HIGH YIELD FUND
Report of Independent Public Accountants
To the Shareholders and Board of Trustees of Goldman Sachs Trust -- High
Yield Fund:
We have audited the accompanying statement of assets and liabilities of the
Goldman Sachs High Yield Fund, one of the portfolios constituting Goldman
Sachs Trust -- Fixed Income Funds (a Delaware Business Trust), including the
statement of investments, as of October 31, 1999, and the related statement
of operations, the statements of changes in net assets and the financial
highlights for the periods presented. These financial statements and the fi-
nancial highlights are the responsibility of the Fund's management. Our re-
sponsibility is to express an opinion on these financial statements and the
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the finan-
cial statements. Our procedures included confirmation of securities owned as
of October 31, 1999 by correspondence with the custodian and brokers. An au-
dit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and the financial highlights re-
ferred to above present fairly, in all material respects, the financial posi-
tion of Goldman Sachs High Yield Fund as of October 31, 1999, the results of
its operations, the changes in its net assets and the financial highlights
for the periods presented, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
December 10, 1999
28
<PAGE>
PART C
OTHER INFORMATION
Item 23. Exhibits
--------
The following exhibits relating to Goldman Sachs Trust are incorporated
herein by reference to Post-Effective Amendment No. 26 to Goldman Sachs Trust's
Registration Statement on Form N-1A (Accession No. 000950130-95-002856); to
Post-Effective Amendment No. 27 to such Registration Statement (Accession No.
0000950130-96-004931); to Post-Effective Amendment No. 29 to such Registration
Statement (Accession No. 0000950130-97-000573); to Post-Effective Amendment No.
31 to such Registration Statement (Accession No. 0000950130-97-000805); to Post-
Effective Amendment No. 32 to such Registration Statement (Accession No.
0000950130-97-0001846); to Post-Effective Amendment No. 40 to such Registration
Statement (Accession No. 0000950130-97-004495); to Post-Effective Amendment No.
41 to such Registration Statement (Accession No 0000950130-98-000676); to Post-
Effective Amendment No. 43 to such Registration Statement (Accession No.
0000950130-98-000965); to Post-Effective Amendment No. 44 to such Registration
Statement (Accession No. 0000950130-98-002160); to Post-Effective Amendment No.
46 to such Registration Statement (Accession No. 0000950130-98-003563); to Post-
Effective Amendment No. 47 to such Registration Statement (Accession No.
0000950130-98-004845); to Post-Effective Amendment No. 48 to such Registration
Statement (Accession No. 0000950109-98-005275); to Post-Effective Amendment No.
50 to such Registration Statement (Accession No. 0000950130-98-006081); to Post-
Effective Amendment No. 51 to such Registration Statement (Accession No.
0000950130-99-000178); to Post-Effective Amendment No. 52 to such Registration
Statement (Accession No. 0000950130-99-000742); to Post-Effective Amendment No.
53 to such Registration Statement (Accession No. 0000950130-99-001069); to Post-
Effective Amendment No. 54 to such Registration Statement (Accession No.
0000950130-99-002212); to Post-Effective Amendment No. 55 to such Registration
Statement (Accession No. 0000950109-99-002544); to Post-Effective Amendment No.
56 to such Registration Statement (Accession No. 0000950130-99-005294); to Post-
Effective Amendment No. 57 to such Registration Statement (Accession No.
0000950109-99-003474); to Post-Effective Amendment No. 58 to such Registration
Statement (Accession No. 0000950109-99-004208); to Post-Effective Amendment No.
59 to such Registration Statement (Accession No. 0000950130-99-006810); to Post-
Effective Amendment No. 60 to such Registration Statement (Accession No.
0000950109-99-004538) (no exhibits filed as part of this Amendment) and to Post-
Effective Amendment No. 61 to such Registration Statement (Accession No.
0000950130-00-000099) (no exhibits filed as part of this Amendment).
-1-
<PAGE>
(a)(1). Agreement and Declaration of Trust dated January 28, 1997.
(Accession No. 0000950130-97-000573.)
(a)(2). Amendment No. 1 dated April 24, 1997 to Agreement and Declaration
of Trust January 28, 1997. (Accession No. 0000950130-97-004495.)
(a)(3). Amendment No. 2 dated July 21, 1997 to Agreement and Declaration
of Trust, as amended, dated January 28, 1997. (Accession No.
0000950130-97-004495.)
(a)(4). Amendment No. 3 dated October 21, 1997 to the Agreement and
Declaration of Trust, as amended, dated January 28, 1997.
(Accession No. 0000950130-98-000676.)
(a)(5). Amendment No. 4 dated January 28, 1998 to the Agreement and
Declaration of Trust, as amended, dated January 28, 1997.
(Accession No. 0000950130-98-000676.)
(a)(6). Amendment No. 5 dated April 23, 1998 to Agreement and Declaration
of Trust as amended, dated January 28, 1997. (Accession No.
0000950130-98-004845.)
(a)(7). Amendment No. 6 dated July 22, 1998 to Agreement and Declaration
of Trust as amended, dated January 28, 1997. (Accession No.
0000950130-98-004845.)
(a)(8). Amendment No. 7 dated November 3, 1998 to Agreement and
Declaration of Trust as amended, dated January 28, 1997.
(Accession No. 0000950130-98-006081.)
(a)(9). Amendment No. 8 dated January 22, 1999 to Agreement and
Declaration of Trust as amended, dated January 28, 1997.
(Accession No. 0000950130-99-000742.)
(a)(10). Amendment No. 9 dated April 28, 1999 to Agreement and Declaration
of Trust as amended, dated January 28, 1997. (Accession No.
0000950109-99-002544.)
(a)(11). Amendment No. 10 dated July 27, 1999 to Agreement and Declaration
of Trust as amended, dated January 28, 1997. (Accession No.
0000950130-99-005294.)
-2-
<PAGE>
(a)(12). Amendment No. 11 dated July 27, 1999 to Agreement and Declaration
of Trust as amended, dated January 28, 1997. (Accession No.
0000950130-99-005294.)
(a)(13). Amendment No. 12 dated October 26, 1999 to Agreement and
Declaration of Trust as amended, dated January 28, 1997.
(Accession No. 0000950130-99-004208.)
(b). Amended and Restated By-laws of the Delaware business trust dated
January 28, 1997. (Accession No. 0000950130-97-000573.)
(b)(2). Amended and Restated By-laws of the Delaware business trust dated
January 28, 1997, as amended or restated July 27, 1999.
(Accession No. 0000950130-99-005294.)
(c). Not applicable.
(d)(1). Management Agreement dated April 30, 1997 between Registrant, on
behalf of Goldman Sachs Short Duration Government Fund, and
Goldman Sachs Funds Management, L.P. (Accession No. 0000950130-
98-000676.)
(d)(2). Management Agreement dated April 30, 1997 between Registrant, on
behalf of Goldman Sachs Adjustable Rate Government Fund, and
Goldman Sachs Funds Management, L.P. (Accession No. 0000950130-
98-000676.)
(d)(3). Management Agreement dated April 30, 1997 between Registrant, on
behalf of Goldman Sachs Short Duration Tax-Free Fund, and Goldman
Sachs Asset Management. (Accession No. 0000950130-98-000676.)
(d)(4). Management Agreement dated April 30, 1997 between Registrant, on
behalf of Goldman Sachs Core Fixed Income Fund, and Goldman Sachs
Asset Management. (Accession No. 0000950130-98-000676.)
(d)(5). Management Agreement dated April 30, 1997 between the Registrant,
on behalf of Goldman Sachs - Institutional Liquid Assets, and
Goldman Sachs Asset Management. (Accession No. 0000950130-98-
000676.)
(d)(6). Management Agreement dated April 30, 1997 between Registrant,
Goldman Sachs Asset Management, Goldman Sachs Fund Management
-3-
<PAGE>
L.P. and Goldman, Sachs Asset Management International.
(Accession No. 0000950109-98-005275.)
(d)(7). Management Agreement dated January 1, 1998 on behalf of the
Goldman Sachs Asset Allocation Portfolios and Goldman Sachs Asset
Management. (Accession No. 0000950130-98-000676.)
(d)(8). Amended Annex A to Management Agreement dated January 1, 1998 on
behalf of the Goldman Sachs Asset Allocation Portfolios and
Goldman Sachs Asset Management (Conservative Strategy Portfolio)
(Accession No. 0000950130-99-000742.)
(d)(9). Amended Annex A dated April 28, 1999 to Management Agreement
dated April 30, 1997. (Accession No. 0000950109-99-002544.)
(d)(10). Amended Annex A dated July 27, 1999 to Management Agreement dated
April 30, 1997. (Accession No. 0000950130-99-005294.)
(d)(11). Amended Annex A dated October 26, 1999 to Management Agreement
dated April 30, 1997. (Accession No. 0000950130-99-004208.)
(e) None.
(f). Not applicable.
(g)(1). Custodian Agreement dated July 15, 1991, between Registrant and
State Street Bank and Trust Company. (Accession No. 0000950130-
95-002856.)
(g)(2). Custodian Agreement dated December 27, 1978 between Registrant
and State Street Bank and Trust Company, on behalf of Goldman
Sachs - Institutional Liquid Assets, filed as Exhibit 8(a).
(Accession No. 0000950130-98-000965.)
(g)(3). Letter Agreement dated December 27, 1978 between Registrant and
State Street Bank and Trust Company, on behalf of Goldman Sachs -
Institutional Liquid Assets, pertaining to the fees payable by
Registrant pursuant to the Custodian Agreement, filed as Exhibit
8(b). (Accession No. 0000950130-98-000965.)
-4-
<PAGE>
(g)(4). Amendment dated May 28, 1981 to the Custodian Agreement referred
to above as Exhibit (g)(2) (Accession No. 0000950130-98-000965.)
(g)(5). Fee schedule relating to the Custodian Agreement between
Registrant on behalf of the Goldman Sachs Asset Allocation
Portfolios and State Street Bank and Trust Company. (Accession
No. 0000950130-97-004495.)
(g)(6). Letter Agreement dated June 14, 1984 between Registrant and State
Street Bank and Trust Company, on behalf of Goldman Sachs -
Institutional Liquid Assets, pertaining to a change in wire
charges under the Custodian Agreement, filed as Exhibit 8(d).
(Accession No. 0000950130-98-000965.)
(g)(7). Letter Agreement dated March 29, 1983 between Registrant and
State Street Bank and Trust Company, on behalf of Goldman Sachs -
Institutional Liquid Assets, pertaining to the latter's
designation of Bank of America, N.T. and S.A. as its subcustodian
and certain other matters, filed as Exhibit 8(f). (Accession No.
0000950130-98-000965.)
(g)(8). Letter Agreement dated March 21, 1985 between Registrant and
State Street Bank and Trust Company, on behalf of Goldman Sachs -
Institutional Liquid Assets, pertaining to the creation of a
joint repurchase agreement account, filed as Exhibit 8(g).
(Accession No. 0000950130-98-000965.)
(g)(9). Letter Agreement dated November 7, 1985, with attachments,
between Registrant and State Street Bank and Trust Company, on
behalf of Goldman Sachs - Institutional Liquid Assets,
authorizing State Street Bank and Trust Company to permit
redemption of units by check, filed as Exhibit 8(h). (Accession
No. 0000950130-98-000965.)
(g)(10). Money Transfer Services Agreement dated November 14, 1985,
including attachment, between Registrant and State Street Bank
and Trust Company, on behalf of Goldman Sachs - Institutional
Liquid Assets, pertaining to transfers of funds on deposit with
State Street Bank and Trust Company, filed as Exhibit 8(i).
(Accession No. 0000950130-98-000965.)
-5-
<PAGE>
(g)(11). Letter Agreement dated November 27, 1985 between Registrant and
State Street Bank and Trust Company, on behalf of Goldman Sachs -
Institutional Liquid Assets, amending the Custodian Agreement.
(Accession No. 0000950130-98-000965.)
(g)(12). Letter Agreement dated July 22, 1986 between Registrant and State
Street Bank and Trust Company, on behalf of Goldman Sachs -
Institutional Liquid Assets, pertaining to a change in wire
charges. (Accession No. 0000950130-98-000965.)
(g)(13). Letter Agreement dated June 20, 1987 between Registrant and State
Street Bank and Trust Company, on behalf of Goldman Sachs -
Institutional Liquid Assets, amending the Custodian Agreement.
(Accession No. 0000950130-98-000965.)
(g)(14). Letter Agreement between Registrant and State Street Bank and
Trust Company, on behalf of Goldman Sachs - Institutional Liquid
Assets, pertaining to the latter's designation of Security
Pacific National Bank as its subcustodian and certain other
matters. (Accession No. 0000950130-98-000965.)
(g)(15). Amendment dated July 19, 1988 to the Custodian Agreement between
Registrant and State Street Bank and Trust Company, on behalf of
Goldman Sachs - Institutional Liquid Assets. Accession No.
0000950130-98-000965.)
(g)(16). Amendment dated December 19, 1988 to the Custodian Agreement
between Registrant and State Street Bank and Trust Company, on
behalf of Goldman Sachs - Institutional Liquid Assets. Accession
No. 0000950130-98-000965.)
(g)(17). Custodian Agreement dated April 6, 1990 between Registrant and
State Street Bank and Trust Company on behalf of Goldman Sachs
Capital Growth Fund. (Accession No. 0000950130-98-006081.)
(g)(18). Sub-Custodian Agreement dated March 29, 1983 between State Street
Bank and Trust Company and Bank of America, National Trust and
Savings Association on behalf of Goldman Sachs Institutional
Liquid Assets. Accession No. 0000950130-98-006081.)
-6-
<PAGE>
(g)(19). Fee schedule dated January 8, 1999 relating to Custodian
Agreement dated April 6, 1990 between Registrant and State Street
Bank and Trust Company (Conservative Strategy Portfolio).
Accession No. 0000950130-99-000742.)
(g)(20). Fee schedule dated April 12, 1999 relating to Custodian Agreement
dated April 6, 1990 between Registrant and State Street Bank and
Trust Company (Strategic Growth and Growth Opportunities
Portfolios). (Accession No. 0000950109-99-002544.)
(g)(21). Fee schedule dated July 19, 1999 relating to Custodian Agreement
dated April 6, 1990 between Registrant and State Street Bank and
Trust Company (Internet Tollkeeper Fund). (Accession No.
0000950130-99-005294.)
(g)(22). Fee schedule dated October 1 , 1999 relating to the Custodian
Agreement dated April 6, 1990 between Registrant and State Street
Bank and Trust Company (Large Cap Value Fund). (Accession No.
0000950130-99-006810).
(h)(1). Wiring Agreement dated June 20, 1987 among Goldman, Sachs & Co.,
State Street Bank and Trust Company and The Northern Trust
Company. (Accession No. 0000950130-98-000965.)
(h)(2). Letter Agreement dated June 20, 1987 regarding use of checking
account between Registrant and The Northern Trust Company.
(Accession No. 0000950130-98-000965.)
(h)(3). Transfer Agency Agreement dated July 15, 1991 between Registrant
and Goldman, Sachs & Co. (Accession No. 0000950130-95-002856.)
(h)(4). Fee schedule relating to Transfer Agency Agreement between
Registrant on behalf of the Goldman Sachs Asset Allocation
Portfolios and Goldman, Sachs & Co. (Accession No. 0000950130-97-
004495.)
(h)(7). Fee schedule dated July 31, 1998 relating to Transfer Agency
Agreement between Registrant and Goldman, Sachs & Co. on behalf
of all Funds of Goldman Sachs Trust other than the Institutional
Liquid Assets and Financial Square Money Market Funds.
(Accession No. 0000950130-98-004845.)
-7-
<PAGE>
(h)(8). Transfer Agency Agreement dated May 1, 1988 between Goldman Sachs
Institutional Liquid Assets and Goldman, Sachs & Co. (Accession
No. 0000950130-98-006081.)
(h)(9). Fee Schedule dated July 31, 1998 relating to Transfer Agency
Agreement between Registrant and Goldman, Sachs & Co. on behalf
of ILA Money Market Funds. (Accession No. 0000950130-98-006081.)
(h)(10). Transfer Agency Agreement dated April 30, 1997 between Registrant
and Goldman, Sachs & Co. on behalf of the Financial Square Funds.
(Accession No. 0000950130-98-006081.)
(h)(11). Transfer Agency Agreement dated April 6, 1990 between GS-Capital
Growth Fund, Inc. and Goldman Sachs & Co. (Accession No.
0000950130-98-006081.)
(h)(12). Goldman Sachs - Institutional Liquid Assets Administration Class
Administration Plan dated April 22, 1998. (Accession No.
0000950130-98-006081.)
(h)(13). FST Administration Class Administration Plan dated April 22,
1998. (Accession No. 0000950130-98-006081.)
(h)(14). Goldman Sachs - Institutional Liquid Assets Service Class Service
Plan dated April 22, 1998. (Accession No. 0000950130-98-006081.)
(h)(15). FST Service Class Service Plan dated April 22, 1998. (Accession
No. 0000950130-98-006081.)
(h)(16). FST Preferred Class Preferred Administration Plan dated April 22,
1998. (Accession No. 0000950130-98-006081.)
(h)(17). Goldman Sachs Trust Administration Class Administration Plan
dated April 23, 1998. (Accession No. 0000950130-98-006081.)
(h)(18). Goldman Sachs Trust Service Class Service Plan dated April 22,
1998. (Accession No. 0000950130-98-006081.)
(h)(19). Cash Management Shares Service Plan dated May 1, 1998.
(Accession No. 0000950130-98-006081.)
-8-
<PAGE>
(h)(20). Form of Retail Service Agreement on behalf of Goldman Sachs Trust
relating to Class A Shares of Goldman Sachs Asset Allocation
Portfolios, Goldman Sachs Fixed Income Funds, Goldman Sachs
Domestic Equity Funds and Goldman Sachs International Equity
Funds. (Accession No. 0000950130-98-006081.)
(h)(21). Form of Retail Service Agreement on behalf of Goldman Sachs Trust
relating to the Preferred Class, Administration Class, Service
Class and Cash Management Class, as applicable, of Goldman Sachs
Financial Square Funds, Goldman Sachs - International Liquid
Asset Portfolios, Goldman Sachs Fixed Income Funds, Goldman Sachs
Domestic Equity Funds, Goldman Sachs International Equity Funds
and Goldman Sachs Asset Allocation Portfolios. (Accession No.
0000950130-98-006081.)
(h)(22). Form of Supplemental Service Agreement on behalf of Goldman Sachs
Trust relating to the Administrative Class, Service Class and
Cash Management Class of Goldman Sachs - Institutional Liquid
Assets Portfolios. (Accession No. 0000950130-98-006081.)
(h)(23). Form of Supplemental Service Agreement on behalf of Goldman Sachs
Trust relating to the FST Shares, FST Preferred Shares, FST
Administration Shares and FST Service Shares of Goldman Sachs
Financial Square Funds. (Accession No. 0000950130-98-006081.)
(h)(24). Fee Schedule dated July 31, 1998 relating to Transfer Agency
Agreement dated July 15, 1991 between the Registrant and Goldman,
Sachs & Co. (Internet Tollkeeper Fund). (Accession No.
0000950130-99-005294.)
(h)(25). FST Select Shares Plan dated October 26, 1999. (Accession No.
0000950130-99-006810).
(i)(1). Opinion of Drinker, Biddle & Reath LLP. (With respect to the
Asset Allocation Portfolios). (Accession No. 0000950130-97-
004495.)
(i)(2). Opinion of Morris, Nichols, Arsht & Tunnell. (Accession No.
0000950130-97-001846.)
(i)(3). Opinion of Drinker Biddle & Reath LLP.(With respect to Japanese
Equity and International
-9-
<PAGE>
Small Cap). (Accession No. 0000950130-98-003563.)
(i)(4). Opinion of Drinker Biddle & Reath LLP. (With respect to Cash
Management Shares). (Accession No. 0000950130-98-003563.)
(i)(5). Opinion of Drinker Biddle & Reath LLP. (With respect to the
European Equity Fund). (Accession No. 0000950130-98-006081.)
(i)(6). Opinion of Drinker Biddle & Reath LLP. (With respect to the CORE
Large Cap Value Fund). (Accession No. 0000950130-98-006081.)
(i)(7). Opinion of Drinker Biddle & Reath LLP (with respect to the
Conservative Strategy Portfolio). (Accession No. 0000950130-99-
001069.)
(i)(8). Opinion of Drinker Biddle & Reath LLP (with respect to the
Strategic Growth and Growth Opportunities Portfolios).
(Accession No. 0000950109-99-002544.)
(i)(9). Opinion of Drinker Biddle & Reath LLP (with respect to the
Internet Tollkeeper Fund). Accession No. 0000950109-99-004208.)
(i)(10). Opinion of Drinker Biddle & Reath LLP (with respect to the Large
Cap Value Fund). (Accession No. 0000950130-99-006810).
(j). None.
(k). Not applicable.
(l). Not applicable.
(m)(1). Class A Distribution and Service Plan amended and restated as of
September 1, 1998. (Accession No. 0000950130-98-004845.)
(m)(2). Class B Distribution and Service Plan amended and restated as of
September 1, 1998. (Accession No. 0000950130-98-004845.)
(m)(3). Class C Distribution and Service Plan amended and restated as of
September 1, 1998. (Accession No. 0000950130-98-004845.)
(m)(4). Cash Management Shares Plan of Distribution pursuant to Rule 12b-
1 dated May 1, 1998. (Accession No. 0000950130-98-006081.)
-10-
<PAGE>
(n). None.
(o). Plan dated October 26, 1999 entered into by Registrant pursuant
to Rule 18f-3. (Accession No. 0000950130-99-006810).
(p)(1). Powers of Attorney of Messrs. Bakhru, Ford, Grip, Shuch, Smart,
Springer, Strubel, McNulty, Mosior, Gilman, Perlowski, Richman,
Surloff, Mmes. MacPherson, Mucker and Taylor. (Accession No.
0000950130-97-000805.)
(p)(2). Powers of Attorney dated October 21, 1997 on behalf of James A.
Fitzpatrick and Valerie A. Zondorak. (Accession No. 0000950130-
98-000676.)
The following exhibits relating to Goldman Sachs Trust are filed herewith
electronically pursuant to EDGAR rules:
(a)(14) Amendment No. 13 dated February 3, 2000 to Agreement and
Declaration of Trust, as amended, dated January 28, 1997.
(d)(12) Amended Annex A dated February 3, 2000 to Management Agreement
dated April 30, 1997.
(e)(1) Distribution Agreement dated April 30, 1997 as amended February
3, 2000 between Registrant and Goldman, Sachs & Co.
(g)(23) Fee schedule dated January 12, 2000 relating to Custodian
Agreement dated April 6, 1990 between Registrant and State Street
Bank and Trust Company (CORE Tax-Managed Equity Fund).
(g)(24) Fee schedule dated January 6, 2000 relating to Custodian
Agreement dated July 15, 1991 between Registrant and State Street
Bank and Trust Company (High Yield Municipal Fund).
(g)(25) Additional Portfolio Agreement dated September 27, 1999 between
Registrant and State Street Bank and Trust Company.
(g)(26) Letter Agreement dated September 27, 1999 between Registrant and
State Street Bank and Trust Company relating to Custodian
Agreement dated December 27, 1978.
(g)(27) Letter Agreement dated September 27, 1999 between Registrant and
State Street Bank and Trust Company relating to Custodian
Agreement dated April 6, 1990.
-11-
<PAGE>
(g)(28) Letter Agreement dated September 27, 1999 between Registrant and
State Street Bank and Trust Company relating to Custodian
Agreement dated July 15, 1991.
(i)(11) Opinion of Drinker Biddle & Reath LLP (with respect to FST Select
Shares) .
(j) Consent of Independent Auditors.
(j)(1) Consent of Independent Auditors.
Item 24. Persons Controlled by or Under Common Control with Registrant.
---------------------------------------------------------------
Not Applicable.
Item 25. Indemnification
---------------
Article IV of the Declaration of Trust of Goldman Sachs Trust, Delaware business
trust, provides for indemnification of the Trustees, officers and agents of the
Trust, subject to certain limitations. The Declaration of Trust is incorporated
by reference to Exhibit (a)(1).
The Management Agreement with each of the Funds (other than the ILA Portfolios)
provides that the applicable Investment Adviser will not be liable for any error
of judgment or mistake of law or for any loss suffered by a Fund, except a loss
resulting from willful misfeasance, bad faith or gross negligence on the part of
the Investment Adviser or from reckless disregard by the Investment Adviser of
its obligations or duties under the Management Agreement. Section 7 of the
Management Agreement with respect to the ILA Portfolios provides that the ILA
Portfolios will indemnify the Adviser against certain liabilities; provided,
however, that such indemnification does not apply to any loss by reason of its
willful misfeasance, bad faith or gross negligence or the Adviser's reckless
disregard of its obligation under the Management Agreement. The Management
Agreements are incorporated by reference to Exhibits (d)(1) through (d)(7);
Section 9 of the Distribution Agreement between the Registrant and Goldman Sachs
dated April 30, 1997, as amended February 3, 2000 and Section 7 of the Transfer
Agency Agreements between the Registrant and Goldman, Sachs & Co. dated July 15,
1991, May 1, 1988, April 30, 1997 and April 6, 1990 each provide that the
Registrant will indemnify Goldman, Sachs & Co. against certain liabilities. A
copy of the Distribution Agreement is included herewith as Exhibit (e)(1). The
Transfer Agency Agreements are incorporated by reference as Exhibits (h)(3),
(h)(8), (h)(10) and (h)(11), respectively, to the Registrant's Registration
Statement.
-12-
<PAGE>
Mutual fund and Trustees and officers liability policies purchased jointly by
the Registrant, Trust for Credit Unions, Goldman Sachs Variable Insurance Trust
and The Commerce Funds insure such persons and their respective trustees,
partners, officers and employees, subject to the policies' coverage limits and
exclusions and varying deductibles, against loss resulting from claims by reason
of any act, error, omission, misstatement, misleading statement, neglect or
breach of duty.
Item 26. Business and Other Connections of Investment Adviser.
----------------------------------------------------
The business and other connections of the officers and Managing Directors of
Goldman, Sachs & Co., Goldman Sachs Funds Management, L.P., and Goldman Sachs
Asset Management International are listed on their respective Forms ADV as
currently filed with the Commission (File Nos. 801-16048, 801-37591 and 801-
38157, respectively) the texts of which are hereby incorporated by reference.
Item 27. Principal Underwriters.
----------------------
(a) Goldman, Sachs & Co. or an affiliate or a division thereof currently serves
as investment adviser and distributor of the units of Trust for Credit Unions,
for shares of Goldman Sachs Trust and for shares of Goldman Sachs Variable
Insurance Trust. Goldman, Sachs & Co., or a division thereof currently serves as
administrator and distributor of the units or shares of The Commerce Funds.
(b) Set forth below is certain information pertaining to the Managing Directors
of Goldman, Sachs & Co., the Registrant's principal underwriter, who are members
of Goldman, Sachs & Co.'s Management Committee. None of the members of the
management committee holds a position or office with the Registrant, except John
P. McNulty who is a trustee of the Registrant.
GOLDMAN SACHS MANAGEMENT COMMITTEE
Name and Principal
Business Address Position
- ------------------- --------
Henry M. Paulson, Jr. (1) Chairman and Chief
Executive Officer
Robert J. Hurst (1) Vice Chairman
John A. Thain (1)(3) President and Co-Chief
Operating Officer
John L. Thornton (3) President and Co-Chief
Operating Officer
-13-
<PAGE>
Lloyd C. Blankfein (1) Managing Director
Richard A. Friedman (1) Managing Director
Steven M. Heller (1) Managing Director
Robert S. Kaplan (1) Managing Director
Robert J. Katz (1) Managing Director
John P. McNulty (2) Managing Director
Michael P. Mortara (1) Managing Director
Daniel M. Neidich (1) Managing Director
Robin Neustein (2) Managing Director
Mark Schwartz (4) Managing Director
Robert K. Steel (2) Managing Director
Leslie C. Tortora (2) Managing Director
Patrick J. Ward (3) Managing Director
Gregory K. Palm (1) Counsel and Managing Director
_______________________
(1) 85 Broad Street, New York, NY 10004
(2) One New York Plaza, New York, NY 10004
(3) Peterborough Court, 133 Fleet Street, London EC4A 2BB, England
(4) ARK Mori Building, 12-32 Akasaka I-Chome Minato-KY,
Tokyo 107-6019, Japan
(c) Not Applicable.
Item 28. Location of Accounts and Records.
--------------------------------
The Declaration of Trust, By-laws and minute books of the Registrant and certain
investment adviser records are in the physical possession of Goldman Sachs Asset
Management, One New York Plaza, New York, New York 10004. All other accounts,
books and other documents required to be maintained under Section 31(a) of the
Investment Company Act of 1940 and the Rules promulgated thereunder are in the
physical possession of State Street Bank and Trust Company, P.O. Box 1713,
Boston, Massachusetts 02105 except for certain transfer agency records which are
maintained by Goldman, Sachs & Co., 4900 Sears Tower, Chicago, Illinois 60606.
-14-
<PAGE>
Item 29. Management Services
-------------------
Not applicable.
Item 30. Undertakings
------------
Not applicable.
-15-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all of the
requirements for effectiveness of this Post-Effective Amendment No. 62 pursuant
to Rule 485(b) under the Securities Act of 1933 and has duly caused this Post-
Effective Amendment No. 62 to its Registration Statement to be signed on its
behalf by the undersigned, duly authorized, in the City and State of New York on
the 17th day of February, 2000.
GOLDMAN SACHS TRUST
(A Delaware business trust)
By: /s/Michael J. Richman
---------------------
Michael J. Richman
Secretary
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment to said Registration Statement has been signed below by the following
persons in the capacities and on the date indicated.
<TABLE>
<CAPTION>
Name Title Date
- ---- ----- ----
<S> <C> <C>
*Douglas C. Grip President and
---------------- Trustee February 17, 2000
Douglas C. Grip
*John M. Perlowski Principal Accounting
------------------ Officer and Principal
John M. Perlowski Financial Officer February 17, 2000
*David B. Ford Trustee February 17, 2000
--------------
David B. Ford
*Mary Patterson McPherson Trustee February 17, 2000
-------------------------
Mary Patterson McPherson
*Ashok N. Bakhru Chairman and Trustee February 17, 2000
----------------
Ashok N. Bakhru
*Alan A. Shuch Trustee February 17, 2000
--------------
Alan A. Shuch
*Jackson W. Smart Trustee February 17, 2000
-----------------
Jackson W. Smart, Jr.
*John P. McNulty Trustee February 17, 2000
----------------
John P. McNulty
*William H. Springer Trustee February 17, 2000
--------------------
William H. Springer
*Richard P. Strubel Trustee February 17, 2000
-------------------
Richard P. Strubel
</TABLE>
*By:/s/ Michael J. Richman
-----------------------
Michael J. Richman,
Attorney-In-Fact
* Pursuant to a power of attorney previously filed.
-16-
<PAGE>
Exhibit Index
-------------
(a)(14) Amendment No. 13 dated February 3, 2000 to Agreement and
Declaration of Trust, as amended, dated January 28, 1997.
(d)(12) Amended Annex A dated February 3, 2000 to Management Agreement
dated April 30, 1997.
(e)(1) Distribution Agreement dated April 30, 1997 as amended February
3, 2000 between Registrant and Goldman, Sachs & Co.
(g)(23) Fee schedule dated January 12, 2000 relating to Custodian
Agreement dated April 6, 1990 between Registrant and State Street
Bank and Trust Company (CORE Tax-Managed Equity Fund).
(g)(24) Fee schedule dated January 6, 2000 relating to Custodian
Agreement dated July 15, 1991 between Registrant and State Street
Bank and Trust Company (High Yield Municipal Fund).
(g)(25) Additional Portfolio Agreement dated September 27, 1999 between
Registrant and State Street Bank and Trust Company.
(g)(26) Letter Agreement dated September 27, 1999 between Registrant and
State Street Bank and Trust Company relating to Custodian
Agreement dated December 27, 1978.
(g)(27) Letter Agreement dated September 27, 1999 between Registrant and
State Street Bank and Trust Company relating to Custodian
Agreement dated April 6, 1990.
(g)(28) Letter Agreement dated September 27, 1999 between Registrant and
State Street Bank and Trust Company relating to Custodian
Agreement dated July 15, 1991.
(i)(11) Opinion of Drinker Biddle & Reath LLP (with respect to FST Select
Shares).
(j) Consent of Independent Auditors.
(j)(1) Consent of Independent Auditors.
-17-
<PAGE>
EXHIBIT (a)(14)
AMENDMENT NO. 13
TO THE
DECLARATION OF TRUST
OF
GOLDMAN SACHS TRUST
This AMENDMENT NO. 13 dated the 3rd day of February, 2000 to the
AGREEMENT AND DECLARATION OF TRUST (the "Declaration"), as amended, dated the
28th day of January, 1997 is made by the Trustees name below;
WHEREAS, the Trustees have established a trust for the investment and
reinvestment of funds contributed thereto;
WHEREAS, the Trustees divided the beneficial interest in the trust assets
into transferable shares of beneficial interest and divided such shares of
beneficial interest into separate Series;
WHEREAS, the Trustees desire to create new Series and designate new Classes
of shares;
NOW, THEREFORE, in consideration of the foregoing premises and the
agreements contained herein, the undersigned, being all of the Trustees of the
Trust and acting in accordance with Article V, Section 1 of the Declaration,
hereby amend the Declaration as follows:
The Trust shall consist of one or more Series. Without limiting the
authority of the Trustees to establish and designate any further Series,
the Trustees hereby establish the following 54 Series: Goldman Sachs
Adjustable Rate Government Fund, Goldman Sachs Short Duration Government
Fund, Goldman Sachs Short Duration Tax-Free Fund, Goldman Sachs Core Fixed
Income Fund, Goldman Sachs Global Income Fund, Goldman Sachs Government
Income Fund, Goldman Sachs Municipal Income Fund, Goldman Sachs High Yield
Fund, Goldman Sachs High Yield Municipal Fund, Goldman Sachs Balanced
Fund, Goldman Sachs CORE Large Cap Growth Fund, Goldman Sachs CORE U.S.
Equity Fund, Goldman Sachs CORE Small Cap Equity Fund, Goldman Sachs CORE
International Equity Fund, Goldman Sachs Growth and Income Fund, Goldman
Sachs Capital Growth Fund, Goldman Sachs Mid Cap Value Fund, Goldman Sachs
Small Cap Value Fund, Goldman Sachs International Equity Fund, Goldman
Sachs Asia Growth Fund, Goldman Sachs Emerging Markets Equity Fund, Goldman
Sachs Real Estate Securities Fund, Goldman Sachs International Small Cap
Fund, Goldman Sachs Japanese Equity Fund, Goldman Sachs European Equity
Fund, Goldman Sachs CORE Large Cap Value Fund, Goldman Sachs Strategic
Growth Fund, Goldman Sachs Growth Opportunities Fund, Goldman Sachs
Internet Tollkeeper Fund, Goldman Sachs Large Cap Value Fund, Goldman Sachs
CORE Tax-Managed Equity Fund, Goldman Sachs Growth Strategy Portfolio,
Goldman Sachs Aggressive Growth Strategy Portfolio, Goldman Sachs Balanced
Strategy Portfolio, Goldman Sachs Growth and Income Strategy Portfolio,
Goldman Sachs Conservative Strategy Portfolio, Institutional Liquid Assets-
Prime Obligations Portfolio, Institutional Liquid Assets-Government
Portfolio, Institutional Liquid Assets-Treasury Obligations Portfolio,
Institutional Liquid Assets-Money Market Portfolio, Institutional Liquid
Assets-Federal Portfolio, Institutional Liquid Assets-Treasury Instruments
Portfolio, Institutional Liquid Assets-Tax-Exempt Diversified Portfolio,
Institutional Liquid Assets-Tax-Exempt New York Portfolio, Institutional
Liquid Assets-Tax-Exempt
<PAGE>
California Portfolio, Goldman Sachs-Financial Square Prime Obligations
Fund, Goldman Sachs-Financial Square Government Fund, Goldman Sachs-
Financial Square Treasury Obligations Fund, Goldman Sachs-Financial Square
Money Market Fund, Goldman Sachs-Financial Square Premium Money Market
Fund, Goldman Sachs-Financial Square Municipal Money Market Fund, Goldman
Sachs-Financial Square Tax-Free Money Market Fund, Goldman Sachs-Financial
Square Federal Fund, and Goldman Sachs-Financial Square Treasury
Instruments Fund (the "Existing Series"). Each additional Series shall be
established and is effective upon the adoption of a resolution of a
majority of the Trustees or any alternative date specified in such
resolution. The Trustees may designate the relative rights and preferences
of the Shares of each Series. The Trustees may divide the Shares of any
Series into Classes. Without limiting the authority of the Trustees to
establish and designate any further Classes, the Trustees hereby establish
the following classes of shares with respect to the series set forth below:
Class A Shares: Goldman Sachs Adjustable Rate Government Fund, Goldman Sachs
Global Income Fund, Goldman Sachs Government Income Fund,
Goldman Sachs Municipal Income Fund, Goldman Sachs High Yield
Fund, Goldman Sachs Short Duration Government Fund, Goldman
Sachs Short Duration Tax-Free Fund, Goldman Sachs Core Fixed
Income Fund, Goldman Sachs High Yield Municipal Fund, Goldman
Sachs Balanced Fund, Goldman Sachs CORE U.S. Equity Fund,
Goldman Sachs CORE Small Cap Equity Fund, Goldman Sachs CORE
International Equity Fund, Goldman Sachs CORE Large Cap
Growth Fund, Goldman Sachs Growth and Income Fund, Goldman
Sachs Mid Cap Value Fund, Goldman Sachs Capital Growth Fund,
Goldman Sachs Small Cap Value Fund, Goldman Sachs
International Equity Fund, Goldman Sachs Emerging Markets
Equity Fund, Goldman Sachs Asia Growth Fund, Goldman Sachs
Real Estate Securities Fund, Goldman Sachs International
Small Cap Fund, Goldman Sachs Japanese Equity Fund, Goldman
Sachs European Equity Fund, Goldman Sachs CORE Large Cap
Value Fund, Goldman Sachs Strategic Growth Fund, Goldman
Sachs Growth Opportunities Fund, Goldman Sachs Internet
Tollkeeper Fund, Goldman Sachs Large Cap Value Fund, Goldman
Sachs CORE Tax-Managed Equity Fund, Goldman Sachs Growth
Strategy Portfolio, Goldman Sachs Aggressive Growth Strategy
Portfolio, Goldman Sachs Balanced Strategy Portfolio, Goldman
Sachs Growth and Income Strategy Portfolio, Goldman Sachs
Conservative Strategy Portfolio.
Class B Shares Goldman Sachs Global Income Fund, Goldman Sachs Government
Income Fund, Goldman Sachs Municipal Income Fund, Goldman
Sachs High Yield Fund, Goldman Sachs Short Duration
Government Fund, Goldman Sachs Short Duration Tax-Free Fund,
Goldman Sachs Core Fixed Income Fund, Goldman Sachs High
Yield Municipal Fund, Goldman Sachs Balanced Fund, Goldman
Sachs CORE U.S. Equity Fund, Goldman Sachs CORE Small Cap
Equity Fund, Goldman Sachs CORE International Equity Fund,
Goldman Sachs CORE Large Cap Growth Fund, Goldman Sachs
Growth and Income Fund, Goldman Sachs Mid Cap Value Fund,
Goldman Sachs Capital Growth Fund, Goldman Sachs Small Cap
Value Fund, Goldman Sachs International Equity Fund, Goldman
Sachs Emerging Markets Equity Fund, Goldman Sachs Asia Growth
Fund, Goldman Sachs International Small Cap Fund, Goldman
Sachs Japanese Equity Fund, Goldman Sachs CORE Large Cap
Value Fund, Goldman Sachs Growth Opportunities Fund, Goldman
Sachs Strategic Growth Fund, Goldman Sachs Internet
Tollkeeper Fund, Goldman Sachs Large Cap Value Fund, Goldman
Sachs CORE Tax-Managed Equity Fund, Institutional Liquid
Assets Prime Obligations Portfolio, Goldman Sachs Real Estate
Securities Fund, Goldman Sachs European Equity Fund, Goldman
Sachs Growth Strategy Portfolio, Goldman Sachs Aggressive
Growth Strategy Portfolio, Goldman Sachs Balanced Strategy
Portfolio, Goldman Sachs Growth and Income Strategy
Portfolio, Goldman Sachs Conservative Strategy Portfolio.
Class C Shares Goldman Sachs Global Income Fund, Goldman Sachs Government
Income Fund, Goldman Sachs Municipal Income Fund, Goldman
Sachs High Yield Fund, Goldman Sachs Short
<PAGE>
Duration Government Fund, Goldman Sachs Short Duration
Tax-Free Fund, Goldman Sachs Core Fixed Income Fund,
Goldman Sachs High Yield Municipal Fund, Goldman Sachs
Balanced Fund, Goldman Sachs CORE U.S. Equity Fund,
Goldman Sachs CORE Small Cap Equity Fund, Goldman Sachs
CORE International Equity Fund, Goldman Sachs CORE Large
Cap Growth Fund, Goldman Sachs Growth and Income Fund,
Goldman Sachs Mid Cap Value Fund, Goldman Sachs Capital
Growth Fund, Goldman Sachs Small Cap Value Fund, Goldman
Sachs International Equity Fund, Goldman Sachs Emerging
Markets Equity Fund, Goldman Sachs Asia Growth Fund,
Goldman Sachs International Small Cap Fund, Goldman Sachs
Japanese Equity Fund, Institutional Liquid Assets Prime
Obligations Portfolio, Goldman Sachs Real Estate
Securities Fund, Goldman Sachs European Equity Fund,
Goldman Sachs CORE Large Cap Value Fund, Goldman Sachs
Strategic Growth Fund, Goldman Sachs Growth Opportunities
Fund, Goldman Sachs Internet Tollkeeper Fund, Goldman
Sachs Large Cap Value Fund, Goldman Sachs CORE Tax-
Managed Equity Fund, Goldman Sachs Growth Strategy
Portfolio, Goldman Sachs Aggressive Growth Strategy
Portfolio, Goldman Sachs Balanced Strategy Portfolio,
Goldman Sachs Growth and Income Strategy Portfolio,
Goldman Sachs Conservative Strategy Portfolio.
Institutional Shares: Goldman Sachs Adjustable Rate Government Fund, Goldman
Sachs Short Duration Government Fund, Goldman Sachs Short
Duration Tax-Free Fund, Goldman Sachs Government Income
Fund, Goldman Sachs Municipal Income Fund, Goldman Sachs
Core Fixed Income Fund, Goldman Sachs High Yield
Municipal Fund, Goldman Sachs Global Income Fund, Goldman
Sachs High Yield Fund, Goldman Sachs Balanced Fund,
Goldman Sachs Small Cap Value Fund, Goldman Sachs Capital
Growth Fund, Goldman Sachs CORE Large Cap Growth Fund,
Goldman Sachs CORE U.S. Equity Fund, Goldman Sachs CORE
Small Cap Equity Fund, Goldman Sachs CORE International
Equity Fund, Goldman Sachs Growth and Income Fund,
Goldman Sachs Mid Cap Value Fund, Goldman Sachs
International Equity Fund, Goldman Sachs Emerging Markets
Equity Fund, Goldman Sachs Asia Growth Fund, Goldman
Sachs International Small Cap Fund, Goldman Sachs
Japanese Equity Fund, Goldman Sachs Real Estate
Securities Fund, Goldman Sachs European Equity Fund,
Goldman Sachs CORE Large Cap Value Fund, Goldman Sachs
Growth Opportunities Fund, Goldman Sachs Strategic Growth
Fund, Goldman Sachs Internet Tollkeeper Fund, Goldman
Sachs Large Cap Value Fund, Goldman Sachs CORE Tax-
Managed Equity Fund Goldman Sachs-Financial Square Prime
Obligations Fund, Goldman Sachs-Financial Square
Government Fund, Goldman Sachs-Financial Square Treasury
Obligations Fund, Goldman Sachs-Financial Square Money
Market Fund, Goldman Sachs-Financial Square Premium Money
Market Fund, Goldman Sachs-Financial Square Municipal
Money Market Fund, Goldman Sachs-Financial Square Tax-
Free Money Market Fund, Goldman Sachs-Financial Square
Federal Fund, Goldman Sachs-Financial Square Treasury
Instruments Fund, Institutional Liquid Assets-Prime
Obligations Portfolio, Institutional Liquid Assets-
Government Portfolio, Institutional Liquid Assets-
Treasury Obligations Portfolio, Institutional Liquid
Assets-Money Market Portfolio, Institutional Liquid
Assets-Federal Portfolio, Institutional Liquid Assets-
Treasury Instruments Portfolio, Institutional Liquid
Assets-Tax-Exempt Diversified Portfolio, Institutional
Liquid Assets-Tax-Exempt New York Portfolio,
Institutional Liquid Assets-Tax-Exempt California
Portfolio, Goldman Sachs Growth Strategy Portfolio,
Goldman Sachs Aggressive Growth Strategy Portfolio,
Goldman Sachs Balanced Strategy Portfolio, Goldman Sachs
Growth and Income Strategy Portfolio, Goldman Sachs
Conservative Strategy Portfolio.
Service Shares: Goldman Sachs Adjustable Rate Government Fund, Goldman
Sachs Short Duration Government Fund, Goldman Sachs Short
Duration Tax-Free Fund, Goldman Sachs Government Income
Fund, Goldman Sachs Municipal Income Fund, Goldman Sachs
Core Fixed Income Fund, Goldman Sachs High Yield
Municipal Fund, Goldman Sachs Global Income Fund, Goldman
Sachs High Yield Fund, Goldman Sachs Balanced Fund,
Goldman Sachs Small Cap Value Fund, Goldman Sachs Capital
Growth Fund, Goldman Sachs CORE
<PAGE>
U.S. Equity Fund, Goldman Sachs CORE Large Cap Growth
Fund, Goldman Sachs CORE Small Cap Equity Fund, Goldman
Sachs CORE International Equity Fund, Goldman Sachs
Growth and Income Fund, Goldman Sachs Mid Cap Value
Fund, Goldman Sachs International Equity Fund, Goldman
Sachs Emerging Markets Equity Fund, Goldman Sachs Asia
Growth Fund, Goldman Sachs International Small Cap Fund,
Goldman Sachs Japanese Equity Fund, Goldman Sachs Real
Estate Securities Fund, Goldman Sachs European Equity
Fund, Goldman Sachs CORE Large Cap Value Fund, Goldman
Sachs Strategic Growth Fund, Goldman Sachs Growth
Opportunities Fund, Goldman Sachs Internet Tollkeeper
Fund, Goldman Sachs Large Cap Value Fund, Goldman Sachs
CORE Tax-Managed Equity Fund, Goldman Sachs-Financial
Square Prime Obligations Fund, Goldman Sachs-Financial
Square Government Fund, Goldman Sachs-Financial Square
Treasury Obligations Fund, Goldman Sachs-Financial
Square Money Market Fund, Goldman Sachs-Financial Square
Premium Money Market Fund, Goldman Sachs-Financial
Square Municipal Money Market Fund, Goldman Sachs-
Financial Square Tax-Free Money Market Fund, Goldman
Sachs-Financial Square Federal Fund, Goldman Sachs-
Financial Square Treasury Instruments Fund,
Institutional Liquid Assets-Prime Obligations Portfolio,
Institutional Liquid Assets-Government Portfolio,
Institutional Liquid Assets-Treasury Obligations
Portfolio, Institutional Liquid Assets-Money Market
Portfolio, Institutional Liquid Assets-Federal
Portfolio, Institutional Liquid Assets-Treasury
Instruments Portfolio, Institutional Liquid Assets-Tax-
Exempt Diversified Portfolio, Institutional Liquid
Assets-Tax-Exempt New York Portfolio, Institutional
Liquid Assets-Tax-Exempt California Portfolio, Goldman
Sachs Growth Strategy Portfolio, Goldman Sachs
Aggressive Growth Strategy Portfolio, Goldman Sachs
Balanced Strategy Portfolio, Goldman Sachs Growth and
Income Strategy Portfolio, Goldman Sachs Conservative
Strategy Portfolio.
Administration Shares: Goldman Sachs-Financial Square Prime Obligations Fund,
Goldman Sachs-Financial Square Government Fund, Goldman
Sachs-Financial Square Treasury Obligations Fund,
Goldman Sachs-Financial Square Money Market Fund,
Goldman Sachs-Financial Square Premium Money Market
Fund, Goldman Sachs-Financial Square Municipal Money
Market Fund, Goldman Sachs-Financial Square Tax-Free
Money Market Fund, Goldman Sachs-Financial Square
Federal Fund, Goldman Sachs-Financial Square Treasury
Instruments Fund, Institutional Liquid Assets-Prime
Obligations Portfolio, Institutional Liquid Assets-
Government Portfolio, Institutional Liquid Assets-
Treasury Obligations Portfolio, Institutional Liquid
Assets-Money Market Portfolio, Institutional Liquid
Assets-Federal Portfolio, Institutional Liquid Assets-
Treasury Instruments Portfolio, Institutional Liquid
Assets-Tax-Exempt Diversified Portfolio, Institutional
Liquid Assets-Tax- Exempt New York Portfolio and
Institutional Liquid Assets-Tax-Exempt California
Portfolio.
Preferred
Administration Shares: Goldman Sachs-Financial Square Prime Obligations Fund,
Goldman Sachs-Financial Square Government Fund, Goldman
Sachs-Financial Square Treasury Obligations Fund,
Goldman Sachs-Financial Square Money Market Fund,
Goldman Sachs-Premium Money Market Fund, Goldman Sachs-
Financial Square Municipal Money Market Fund, Goldman
Sachs-Financial Square Tax-Free Money Market Fund,
Goldman Sachs-Financial Square Federal Fund and Goldman
Sachs-Financial Square Treasury Instruments Fund.
Cash Management
Shares: Institutional Liquid Assets-Prime Obligations Portfolio,
Institutional Liquid Assets-Money Market Portfolio,
Institutional Liquid Assets-Government Portfolio,
Institutional Liquid Assets-Tax-Exempt Diversified
Portfolio, Institutional Liquid Assets-Tax-Exempt
California Portfolio, Institutional Liquid Assets-Tax-
Exempt New York Portfolio.
<PAGE>
Select Shares: Goldman Sachs-Financial Square Prime Obligations Fund,
Goldman Sachs-Financial Square Government Fund, Goldman
Sachs-Financial Square Treasury Obligations Fund, Goldman
Sachs-Financial Square Money Market Fund, Goldman Sachs-
Financial Square Premium Money Market Fund, Goldman Sachs-
Financial Square Municipal Money Market Fund, Goldman Sachs-
Financial Square Tax-Free Money Market Fund, Goldman Sachs-
Financial Square Federal Fund and Goldman Sachs-Financial
Square Treasury Instruments Fund .
All capitalized terms which are not defined herein shall have the same
meanings as are assigned to those terms in the Declaration.
IN WITNESS WHEREOF, the undersigned have executed this instrument as of the
date first written above.
/s/ Ashok N. Bakhru
-----------------------------------
Ashok N. Bakhru,
as Trustee and not individually
/s/ David B. Ford
-----------------------------------
David B. Ford,
as Trustee and not individually
/s/ Douglas Grip
-----------------------------------
Douglas Grip,
as Trustee and not individually
/s/ John P. McNulty
-----------------------------------
John P. McNulty,
as Trustee and not individually,
/s/ Mary P. McPherson
-----------------------------------
Mary P. McPherson
as Trustee and not individually,
/s/ Alan A. Shuch
-----------------------------------
Alan A. Shuch
as Trustee and not individually,
<PAGE>
/s/ Jackson W. Smart, Jr.
----------------------------------------
Jackson W. Smart, Jr.
as Trustee and not individually,
/s/ William H. Springer
----------------------------------------
William H. Springer
as Trustee and not individually,
/s/ Richard P. Strubel
----------------------------------------
Richard P. Strubel
as Trustee and not individually,
<PAGE>
Exhibit (d)(12)
Amended Annex A
The compensation payable under Paragraph 5 of the Management Agreement between
Goldman Sachs Trust and each of the undersigned shall be as follows:
Goldman Sachs Asset Management
Annual Rate
-----------
Goldman Sachs Government Income Fund 0.65%
Goldman Sachs Municipal Income Fund 0.55%
Goldman Sachs High Yield Fund 0.70%
Goldman Sachs High Yield Municipal Fund/8/ 0.55%
Goldman Sachs Balanced Fund 0.65%
Goldman Sachs Growth and Income Fund 0.70%
Goldman Sachs CORE Large Cap Value Fund/4/ 0.60%
Goldman Sachs CORE Large Cap Growth Fund 0.75%
Goldman Sachs CORE Small Cap Equity Fund/1/ 1.00%
Goldman Sachs CORE International Equity Fund/1/ 1.00%
Goldman Sachs CORE Tax -Managed Equity Fund/7/ 0.60%
Goldman Sachs Mid Cap Value Fund 0.75%
Goldman Sachs Small Cap Value Fund 1.00%
Goldman Sachs Real Estate Securities Fund/1/ 1.00%
Goldman Sachs Strategic Growth Fund/5/ 1.00%
Goldman Sachs Growth Opportunities Fund/5/ 1.00%
Goldman Sachs Internet Toll-Keeper Fund/6/ 1.00%
Goldman Sachs Large Cap Value Fund/8/ 0.75%
Goldman Sachs-Financial Square Prime Obligations Fund 0.205%
Goldman Sachs-Financial Square Money Market Fund 0.205%
Goldman Sachs-Financial Square Treasury Obligations Fund 0.205%
Goldman Sachs-Financial Square Treasury Instruments Fund 0.205%
Goldman Sachs-Financial Square Government Fund 0.205%
Goldman Sachs-Financial Square Federal Fund 0.205%
Goldman Sachs-Financial Square Tax-Free Money Market Fund 0.205%
Goldman Sachs-Financial Square Premium Money Market Fund 0.205%
Goldman Sachs-Financial Square Municipal Money Market Fund 0.205%
Goldman Sachs Funds Management L.P.
Goldman Sachs CORE U.S. Equity Fund 0.75%
Goldman Sachs Capital Growth Fund 1.00%
Goldman Sachs Asset Management International
Goldman Sachs Global Income Fund 0.90%
Goldman Sachs International Equity Fund 1.00%
Goldman Sachs Emerging Markets Equity Fund 1.20%
Goldman Sachs Asia Growth Fund 1.00%
Goldman Sachs International Small Cap Fund/2/ 1.20%
Goldman Sachs Japanese Equity Fund/2/ 1.00%
Goldman Sachs European Equity Fund/3/ 1.00%
- ----------
/1/ Please note that the CORE Small Cap Equity Fund, CORE International Equity
Fund and Real Estate Securities Fund were approved at the July 21, 1997 Goldman
Sachs Trust Board Meeting.
/2/ Please note that the International Small Cap Fund and Japanese Equity Fund
were approved at the April 23, 1998 Goldman Sachs Trust Board Meeting.
/3/ Please note that the European Equity Fund was approved at the July 22, 1998
Goldman Sachs Trust Board Meeting.
/4/ Please note that the CORE Large Cap Value Fund was approved at the November
3, 1998 Goldman Sachs Trust Board Meeting.
/5/ Please note that the Strategic Growth Fund and Growth Opportunities Fund
were approved at the April 28, 1999 Goldman Sachs Trust Board Meeting.
/6/ Please note that the Internet Tollkeeper Fund was approved at the July 27,
1999 Goldman Sachs Trust Board Meeting.
/7/ Please note that the Large Cap Value Fund was approved at the October 26,
1999 Goldman Sachs Trust Board Meeting.
/8/ Please note that the High Yield Municipal Fund and the CORE Tax-Managed
Equity Fund were approved at the February 3, 2000 Goldman Sachs Trust Board
Meeting.
<PAGE>
PURSUANT TO AN EXEMPTION FROM THE COMMODITIES FUTURES TRADING COMMISSION
("CFTC") IN CONNECTION WITH ACCOUNTS OF QUALIFIED ELIGIBLE CLIENTS, THIS ACCOUNT
DOCUMENT IS NOT REQUIRED TO BE, AND HAS NOT BEEN FILED WITH THE CFTC. THE CFTC
DOES NOT PASS UPON THE MERITS OF PARTICIPATING IN A TRADING PROGRAM OR UPON THE
ADEQUACY OR ACCURACY OR COMMODITY TRADING ADVISOR DISCLOSURE. CONSEQUENTLY, THE
CFTC HAS NOT REVIEWED OR APPROVED THE TRADING PROGRAM ADOPTED HEREUNDER OR ANY
BROCHURE OR ACCOUNT DOCUMENT.
GOLDMAN SACHS TRUST
By: (signature illegible)
------------------------
Title:
------------------------
GOLDMAN SACHS ASSET MANAGEMENT,
a division of Goldman, Sachs & Co.
By: /s/ David B. Ford
------------------------
Title:
------------------------
GOLDMAN SACHS FUNDS MANAGEMENT, LP.,
an affiliate of Goldman, Sachs & Co.
By: /s/ David B. Ford
------------------------
Title:
------------------------
GOLDMAN SACHS ASSET MANAGEMENT
INTERNATIONAL, an affiliate of Goldman, Sachs Co.
By: /s/ David B. Ford
------------------------
Title:
------------------------
Dated: February 3, 2000
<PAGE>
Exhibit (e)(1)
GOLDMAN SACHS TRUST
Distribution Agreement
April 30, 1997, as amended February 3, 2000
Goldman, Sachs & Co.
85 Broad Street
New York, New York 10004
Dear Sirs:
This is to confirm that, in consideration of the agreements hereinafter
contained, the undersigned, Goldman Sachs Trust (the "Trust"), an open-end
-----
management investment company organized as a business trust under the laws of
the State of Delaware, and consisting of one or more separate series, has
appointed you, the "Distributor," and that you shall be the exclusive
-----------
distributor in connection with the offering and sale of the shares of beneficial
interest, par value $.001 per share (the "Shares"), corresponding to each of the
------
series of the Trust listed in Exhibit A, as the same may be supplemented from
---------
time to time (each such series, a "Fund"). Each Fund may offer one or more
----
classes of its shares (each a "Class") which Classes shall have such relative
rights and conditions and shall be sold in the manner set forth from time to
time in the Trust's Registration Statements, as defined below. The
organization, administration and policies of each Fund are described in its
respective Prospectuses and SAIs (as those terms are defined below). (This
letter, as amended from time to time, shall be referred to hereinafter as the
"Agreement".)
- ----------
1. Definitions. (a) The terms which follow, when used in this Agreement, shall
-----------
have the meanings indicated.
"Effective Date" shall mean the date that any Registration Statement or
--------------
any post-effective amendment thereto becomes effective.
"Preliminary Prospectus" shall mean any preliminary prospectus relating
----------------------
to the Shares of a Fund or Funds or one or more Classes included in any
Registration Statement or filed with the Securities and Exchange Commission
(the "Commission") pursuant to Rule 497(a).
"Prospectus" shall mean any prospectus relating to the Shares of a Fund
----------
or Funds or one or more Classes, filed with the Commission pursuant to Rule
497 or, if no filing pursuant to Rule 497 is required, the form of final
prospectus relating thereto included in any Registration Statement, in each
case together with any amendments or supplements thereto.
"Registration Statement" shall mean any registration statement on Form
----------------------
N-1A relating to the Shares of a Fund, including all exhibits thereto, as of
the Effective Date of the most recent post-effective amendment thereto. The
registration statements of the Trust may be separately filed with the
Commission according to its fixed income, equity and money market fund
offerings.
"Rule 497" refers to such rule (or any successor rule or rules) under
--------
the Securities Act (as defined in Section 2 below).
"SAI" shall mean any statement of additional information relating to
---
the Shares of a Fund or Funds or one or more Classes, filed with the
Commission pursuant to Rule 497 or, if no filing pursuant to Rule 497 is
required, the final statement of additional information included in any
Registration Statement.
<PAGE>
The "Initial Acceptance Date" of any Fund shall mean the first date on
-----------------------
which the Trust sells Shares of such Fund pursuant to any Registration
Statement.
References in this Agreement to "Rules and Regulations" shall be deemed
---------------------
to be references to such rules and regulations as then in effect, and
references to this Agreement and the Fund Agreements (as defined in Section
2 below), shall be deemed to be references to such agreements as then in
effect.
2. Representations and Warranties. The Trust represents and warrants to and
------------------------------
agrees with you, for your benefit and the benefit of each Authorized Dealer
(as defined in Section 3 below), as set forth below in this Section 2. Each
of the representations, warranties and agreements made in this Section 2
shall be deemed made on the date hereof, on the date of any filing of any
Prospectus pursuant to Rule 497 and any Effective Date after the date
hereof, with the same effect as if made on each such date.
(a) The Trust meets the requirements for use of Form N-1A under the Securities
Act of 1933, as amended (the "Securities Act"), the Investment Company Act
--------------
of 1940, as amended (the "Investment Company Act"), and the Rules and
----------------------
Regulations of the Commission under each such Act and in respect of said
form (or of such successor form as the Commission may adopt). The Trust has
filed with the Commission Registration Statements (File Number 33-17619) on
Form N-1A with respect to an indefinite number of Shares of the Funds and is
duly registered as an open-end management investment company. Prior to the
date hereof, the Trust has filed post-effective amendments to the
Registration Statements, including related Preliminary Prospectuses, for the
registration under the Securities Act and the Investment Company Act of the
offering and sale of the Shares of the Funds, each of which has previously
been furnished to you. Each such amendment has become effective and no stop
order suspending the effectiveness of any such amendment has been issued and
no proceeding for that purpose has been initiated or threatened by the
Commission.
(b) The Trust's notification of registration on Form N-8A (as amended) complies
with the applicable requirements of the Investment Company Act and the Rules
and Regulations thereunder.
(c) Each Registration Statement, Prospectus and SAI conform, and any further
amendments or supplements to any Registration Statement, Prospectus or SAI
will conform, in all material respects, with the Securities Act and
Investment Company Act and the Rules and Regulations thereunder; the
Prospectuses and the SAIs do not include any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; and, on each Effective Date, the Registration
Statements did not and will not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein not misleading; provided,
--------
however, that the Trust makes no representations or warranties as to the
-------
information contained in or omitted from any Registration Statement,
Prospectus or SAI in reliance upon and in conformity with information
furnished in writing to the Trust by you (with respect to information
relating solely to your role as distributor of the Shares of the Funds)
expressly for use therein.
(d) No order preventing or suspending the use of any Preliminary Prospectus has
been issued by the Commission, and each Preliminary Prospectus, at the time
of filing thereof, conformed in all material respects to the requirements of
the Securities Act and the Rules and Regulations of the Commission
thereunder, and did not contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under which
they were made, not misleading; provided, however, that this
-2-
<PAGE>
representation and warranty shall not apply to any statements or omissions
made in reliance upon and in conformity with information furnished in
writing to the Trust by you (with respect to information relating solely to
your role as the exclusive distributor of the Shares of the Funds)
expressly for use therein.
(e) The Trust has been duly created and is lawfully and validly existing as a
business trust under the laws of the State of Delaware, and has, on the date
hereof, and will have, on and after the date hereof, full power and
authority to own its properties and conduct its business as described in
each Registration Statement, Prospectus and SAI, and is duly qualified to do
business under the laws of each jurisdiction which requires such
qualification wherein it owns or leases material properties or conducts
material business.
(f) The Trust's authorized capitalization is as set forth in the Registration
Statements. Issuance of the Shares of the Funds as contemplated by this
Agreement and by each Prospectus and SAI has been duly and validly
authorized, and the Shares of the Funds, when issued and paid for as
contemplated hereby and thereby, will be fully-paid and, except as
contemplated by the Prospectus and SAI, nonassessable and will conform to
the description thereof contained in the corresponding Prospectus and SAI.
The holders of outstanding shares of each Fund are not entitled to
preemptive or other rights to subscribe for the Shares of any Fund, other
than as contemplated by the Prospectus and SAI relating to each Fund.
(g) This Agreement has been duly authorized, executed and delivered by the
Trust.
(h) On or prior to the Initial Acceptance Date, all of the agreements described
in each Prospectus and SAI relating to the Fund or Funds whose Shares are
first being sold on such date (collectively, the "Fund Agreements") will
---------------
have been duly authorized, executed and delivered by the Trust, and will
comply in all material respects with the Investment Company Act and the
Rules and Regulations thereunder.
(i) The Fund Agreements constitute or will constitute, on and after the Initial
Acceptance Date, assuming due authorization, execution and delivery by the
parties thereto other than the Trust, valid and legally binding instruments,
enforceable in accordance with their respective terms, subject, as to
enforceability, to bankruptcy, insolvency, reorganization and other laws of
general applicability relating to or affecting creditors' rights and to
general equity principles.
(j) No consent, approval, authorization or order of any court or governmental
agency or body is or shall be required, as the case may be, for the
consummation from time to time of the transactions contemplated by this
Agreement and the Fund Agreements, except such as may be required (i) under
the Securities Act, the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), the Investment Company Act, the Rules and Regulations under
-------------
each of the foregoing or the Conduct Rules of the National Association of
Securities Dealers, Inc. (the "NASD") (any of which that were required
----
before offers were made will have been obtained before such offers were made
and all of which will have been obtained, with respect to each Fund, by the
Effective Date of the post-effective amendment relating to the Fund, except
for those which become required under such acts or rules or any other law or
regulation after the Fund's Effective Date but that were not required before
such Effective Date, all of which shall be obtained in a timely manner) or
(ii) state securities laws of any jurisdiction in connection with the
issuance, offer or redemption of the Shares of each Fund by the Trust.
(k) The operations and activities of the Trust and each Fund as contemplated by
the Prospectuses and the SAIs, the performance by the Trust and each Fund of
this Agreement and the Fund Agreements,
-3-
<PAGE>
the making of the offer or the sale of Shares of each Fund and consummation
from time to time of such sales, the redemption of Shares of each Fund, or
any other transactions contemplated herein, in the Fund Agreements, in the
Prospectuses or in the SAIs, will not conflict with, result in a breach of,
or constitute a default under, the declaration of trust or the Trust's By-
laws or, in any material respect, the terms of any other agreement or
instrument to which the Trust is a party or by which it is bound, or any
order or regulation applicable to the Trust of any court, regulatory body,
administrative agency, governmental body or arbitrator having jurisdiction
over the Trust.
(l) There is not pending, or to the best knowledge of the Trust, threatened, any
action, suit or proceeding before any court or governmental agency,
authority or body or any arbitrator to which the Trust is (or, to the best
knowledge of the Trust, is threatened to be) a party, of a character
required to be described in any Registration Statement, Prospectus or SAI
which is not described as required.
(m) There is no contract or other document of a character required to be
described in any Registration Statement, Prospectus or SAI, or to be filed
as an exhibit, which is not described or filed as required.
(n) Except as stated or contemplated in the Registration Statements,
Prospectuses and SAIs, (i) the Trust has not incurred any liabilities or
obligations, direct or contingent, or entered into any transactions, whether
or not in the ordinary course of business, that are material to the Trust,
(ii) there has not been any material adverse change, or, any development
involving a prospective material adverse change, in the condition (financial
or other) of the Trust, (iii) there has been no dividend or distribution
paid or declared in respect of the Trust, and (iv) the Trust has not
incurred any indebtedness for borrowed money.
(o) Each Fund will elect or has elected to be treated as a regulated investment
company as defined in Section 851(a) of the Internal Revenue Code of 1986
for its first taxable year and will operate so as to qualify as such in its
current and all subsequent taxable years.
(p) Except as stated or contemplated in any Prospectus or SAI, the Trust owns
all of its assets free and clear in all material respects of all liens,
security interests, pledges, mortgages, charges and other encumbrances or
defects.
3. Selection of Authorized Dealers; Other Services as Distributor.
--------------------------------------------------------------
(a) With respect to each Class subject to a sales charge, the Distributor shall
have the right on the basis of the representations, warranties and
agreements herein contained and subject to the terms and conditions herein
set forth, to make arrangements for (i) securities dealers (including bank-
affiliated dealers) that are members in good standing of the NASD, (ii)
foreign securities dealers which are not eligible for membership in the NASD
who have agreed to comply as though they were NASD members with the
provisions of Sections 2730, IM-2730, 2740, IM-2740, 2750 and IM-2750 of the
Conduct Rules of the NASD and with Section 2420 thereof as that Section
applies to a non-NASD member broker or dealer in a foreign country, or (iii)
banks, as defined in Section 3(a)(6) of the Exchange Act, which are duly
organized and validly existing in good standing under the laws of the
jurisdiction in which they are organized, to solicit from the public orders
to purchase Shares of the Funds. Such securities dealers and banks
("Authorized Dealers") selected by you in accordance with dealer agreements
--------------------
with you ("Dealer Agreements") shall solicit such orders pursuant to their
-----------------
respective Dealer Agreements. You will act only on your own behalf as
principal in entering into each such Dealer Agreement. With respect to each
Class that is not subject to a sales charge, you shall act as Principal
Underwriter of such shares.
(b) You acknowledge that the only information provided to you by the Trust is
that contained in each
-4-
<PAGE>
Registration Statement, Prospectus and SAI. Neither you nor any Authorized
Dealer nor any other person is authorized by the Trust to give any
information or to make any representations, other than those contained in
the relevant Registration Statement, Prospectus and SAI and any sales
literature approved by appropriate representatives of the Trust. You may
undertake or arrange for such advertising and promotion as you believe is
reasonable in connection with the solicitation of orders to purchase Shares
of a Fund; provided, however, that you will provide the Trust with and
-------- -------
obtain the Trust's approval of copies of any advertising and promotional
materials approved, produced or used by you prior to their use. You will
file such materials with the Commission and the NASD as may be required by
the Exchange Act and the Investment Company Act and the Rules and
Regulations thereunder and by the rules of the NASD.
(c) You agree to perform such services as are described in each Registration
Statement, Prospectus and SAI as to be performed by the Distributor
including, without limitation, distributing Account Information Forms.
(d) All of your activities as distributor of the Shares of the Funds shall
comply, in all material respects, with all applicable laws, Rules and
Regulations, including, without limitation, all rules and regulations made
or adopted by the Commission or by any securities association registered
under the Exchange Act, including the NASD, as in effect from time to time.
4. Offering by the Distributor.
---------------------------
(a) You will act as agent for the Trust in the distribution of Shares of the
Funds and you agree to use your best efforts to offer and sell Shares of the
Funds subject to a sales charge to the public at the public offering price
as set forth in the relevant Prospectus, subject to any waivers or
reductions of any applicable sales charges, dealer allowances and fees as
you and each of the Authorized Dealers, if any, shall have agreed to in
writing. You may also subscribe for Shares of a Fund as principals for
resale to the public or for resale to Authorized Dealers. You shall devote
reasonable time and effort to effect sales of Shares of the Funds, but you
shall not be obligated to sell any specific number of Shares. Nothing
contained herein shall prevent you from entering into like distribution
arrangements with other investment companies.
(b) The Distributor is authorized to purchase Shares of any Fund presented to
them by Authorized Dealers at the price determined in accordance with, and
in the manner set forth in, the Prospectus for such Fund.
(c) Unless you are otherwise notified by the Trust, any right granted to you to
accept orders for Shares of any Fund or to make sales on behalf of the Trust
or to purchase Shares of any Fund for resale will not apply to (i) Shares
issued in connection with the merger or consolidation of any other
investment company with the Trust or its acquisition, by purchase or
otherwise, of all or substantially all of the assets of any investment
company or substantially all the outstanding securities of any such company,
and (ii) Shares that may be offered by the Trust to shareholders by virtue
of their being such shareholders.
5. Compensation.
------------
(a) With respect to any Class which is sold to the public subject to a sales
charge, you will be entitled to receive that portion of the sales charges
applicable to sales of Shares of such Class and not reallocated to
Authorized Dealers as set forth in the relevant Prospectus, subject to any
waivers or
-5-
<PAGE>
reductions of such sales charges, if any, in accordance with
Section 4 of this Agreement. In addition, you shall be entitled to receive
---------------------------------------------
the entire amount of any contingent deferred sales charge imposed and paid
--------------------------------------------------------------------------
by shareholders upon the redemption or repurchase of Shares of any Class
------------------------------------------------------------------------
subject to such charges as set forth in the relevant Prospectus, subject to
---------------------------------------------------------------------------
any waivers or reductions of such sales charges that may be disclosed in
------------------------------------------------------------------------
such Prospectus. With respect to any shares sold subject to a contingent
---------------
deferred sales charge, such charge shall be payable in such amounts as
disclosed in the applicable Prospectus as the same was in effect at the time
of sale. The right to receive any contingent deferred sales charge granted
hereunder shall apply to all shares sold during the term of this Agreement,
and to the extent permitted by the Investment Company Act and other
applicable laws, shall continue with respect to such shares notwithstanding
termination of this Agreement. In connection with each transaction in which
you are acting as an Authorized Dealer, you also will be entitled to that
portion of the sales charges, if any, payable to an Authorized Dealer in
such transaction.
(b) The Trust has entered into Plans of Distribution pursuant to Rule 12b-1
under the 1940 Act ("Rule 12b-1 Plans") with respect to certain classes of
certain Funds. The Trust shall pay to you as distributor of such Classes
the compensation pursuant to the Rule 12b-1 Plans as shall be set forth from
time to time in the Prospectuses and SAIs and provided for under the Rule
12b-1 Plan.
(c) The amounts payable as compensation pursuant to this Section 5 shall be
subject to the limitations in Section 2830 of the Conduct Rules of the NASD.
6. Undertakings. The Trust agrees with you, for your benefit, that:
------------
(a) The Trust shall sell Shares of the Funds so long as it has such Shares
available for sale and shall cause the transfer agent (the "Transfer Agent")
--------------
to record on its books the ownership of such Shares registered in such names
and amounts as you have requested in writing or other means, as promptly as
practicable after receipt by the Trust of the payment therefor. The Trust
will make such filings under the Investment Company Act with, and pay such
fees to, the Commission as are necessary to register Shares of any Fund sold
by you on behalf of the Trust. Prior to the termination of this Agreement,
the Trust will not file any amendment to any Registration Statement or
amendment or supplement to any Prospectus or SAI (whether pursuant to the
Securities Act, the Investment Company Act, or otherwise) without prior
notice to you; provided, however, that nothing contained in this Agreement
-------- -------
shall in any way limit the Trust's right to file such amendments to any
Registration Statement, or amendments or supplements to any Prospectus or
SAI as the Trust may deem advisable, such right being in all respects
absolute and unconditional, it being understood that this proviso shall not
relieve the Trust of its obligation to give prior notice of any such
amendment or supplement to you. Subject to the foregoing sentence, if the
filing of any Prospectus or SAI, as the case may be, contained in any
Registration Statement at the relevant Effective Date, or any amendment or
supplement thereto, is required under Rule 497, the Trust will cause such
Prospectus or SAI, and any amendment or supplement thereto, to be filed with
the Commission pursuant to the applicable paragraph of Rule 497 within the
time period prescribed and will, if requested, provide evidence satisfactory
to you of such timely filing. The Trust will promptly advise you (i) when
such Prospectus or SAI shall have been filed (if required) with the
Commission pursuant to Rule 497, (ii) when, prior to termination of this
Agreement, any amendment to any Registration Statement shall have been filed
or become effective, (iii) of any request by the Commission for any
amendment of any Registration Statement or amendment or supplement to any
Prospectus or SAI or for any additional information relating to or that
could affect disclosure in any of the foregoing, (iv) of the issuance by the
Commission of any order suspending the effectiveness of any Registration
Statement, or suspending the registration of the Trust under the Investment
Company Act, or the institution or (to the best knowledge of the Trust)
threatening of any proceeding for that purpose, and (v) of the receipt by
the Trust of any notification with respect to the suspension of the
qualification of the offer or sale of Shares
-6-
<PAGE>
of a Fund in any jurisdiction or the initiation or (to the best knowledge
of the Trust) threatening of any proceeding for such purpose. The Trust
will use its best efforts to prevent the issuance of any such order or
suspension and, if issued, to obtain as soon as possible the withdrawal or
suspension thereof.
(b) If, at any time when a Prospectus or SAI is required to be delivered under
the Securities Act, any event occurs as a result of which such Prospectus
or SAI would include any untrue statement of a material fact or omit to
state any material fact necessary to make the statements therein, in the
light of the circumstances under which they were made not misleading, or if
it shall be necessary to amend any Registration Statement or amend or
supplement any Prospectus or SAI to comply with the Securities Act, the
Investment Company Act or the Rules and Regulations thereunder, the Trust
will notify you promptly of any such circumstance and promptly will prepare
and file with the Commission, subject to the third sentence of Section
6(a), an amendment or supplement which will correct such statement or
omission or effect such compliance.
(c) As soon as practicable (giving effect to the normal periodic reporting
requirements under the Investment Company Act and the Rules and Regulations
thereunder), the Trust will make generally available to its shareholders
and, subject to Section 8 of this Agreement, to you (with sufficient copies
for the Authorized Dealers), a report containing the financial statements
required to be included in such reports under Section 30(d) of the
Investment Company Act and Rule 30d-1 thereunder.
(d) Subject to Section 8 of this Agreement, the Trust will furnish to you as
many conformed copies of the Registration Statements including exhibits
thereto, on each Effective Date, as you may reasonably request for yourself
and for delivery to the Authorized Dealers and, so long as delivery of a
Prospectus or SAI by you or any Authorized Dealer may be required by law,
the number of copies of each Prospectus and each SAI as you may reasonably
request for yourself and for delivery to the Authorized Dealers.
(e) To the extent required by applicable state law, the Trust will use its best
efforts to arrange for the qualification of an appropriate number of the
Shares of the Funds for sale under the laws of such of the 50 states of the
United States, the District of Columbia, the Commonwealth of Puerto Rico,
the Territory of Guam, and such other jurisdiction as you and the Trust may
approve, and will maintain such qualifications in effect as long as may be
reasonably requested by you, provided that the Trust shall not be required
in connection herewith or as a condition hereto to qualify as a foreign
corporation or to execute a general consent to service of process in any
jurisdiction. You shall furnish such information and other material
relating to your affairs and activities as may be required by the Trust in
connection with such qualifications.
(f) The Trust shall keep you fully informed with respect to its affairs and,
subject to Section 8 of this Agreement, the Trust, if so requested, will
furnish to you, as soon as they are available (with sufficient copies for
the Authorized Dealers), copies of all reports, communications and
financial statements sent by the Trust to its shareholders or filed by, or
on behalf of, the Trust with the Commission.
(g) The Trust agrees that on each date the Trust is required to file with the
Commission a notice under paragraph (b)(1) of Rule 24f-2 under the
Investment Company Act, the Trust, if so requested, shall furnish to you a
copy of the opinion of counsel for the Trust required by such Rule to the
effect that the Shares covered by the notice were legally issued, fully
paid and nonassessable. The Trust further agrees that if, in connection
with the filing of any post-effective amendment to any Registration
Statement after the date of this Agreement:
(i) a change is made to the statements under the caption "Shares of the Fund"
in any Prospectus or SAI
-7-
<PAGE>
that is deemed material by you, the Trust, if so requested, shall furnish to
you an opinion of counsel for the Trust, dated the date of such post-
effective amendment, to the effect of paragraph 2 (to the extent it relates
to the description of the Shares);
(ii) the Fund Agreements are amended or modified in any manner, the Trust, if
so requested, shall furnish to you an opinion of counsel for the Trust,
dated the date of such post-effective amendment; or
(iii) any change is made to the statements under the caption "Taxation" in any
Prospectus or SAI, the Trust, if so requested, shall furnish to you an
opinion of counsel for the Trust, dated the date of such post-effective
amendment.
Any opinion or statement furnished pursuant to this Section 6(g) shall be
modified as necessary to relate to this Agreement and the Fund Agreements
and the Rules and Regulations as then in effect and shall state that the
Authorized Dealers may rely on it.
(h) The Trust, if so requested, shall furnish to you on each subsequent
Effective Date with respect to an amendment of a Registration Statement
which first includes certified financial statements for the preceding
fiscal year, in respect of a Fund, a copy of the report of the Trust's
independent public accountants with respect to the financial statements
and selected per share data and ratios relating to such Fund, addressed to
you. The Trust further agrees that the Trust, if so requested, shall
furnish to you (i) on each date on which the Trust, pursuant to the
preceding sentence, furnishes to you a report of its independent public
accountants, a certificate of its treasurer or assistant treasurer in a
form reasonably satisfactory to you describing in reasonable detail how
the figures included under the captions "Portfolio Transactions" and
"Performance Information" (or similar captions) in the Prospectus or SAI
of such Fund and the figures relating to the aggregate amounts of
remuneration paid to officers, trustees and members of the advisory board
and affiliated persons thereof (as required by Section 30(d)(5) of the
Investment Company Act) were calculated and confirming that such
calculations are in conformity with the Rules and Regulations under the
Investment Company Act and (ii) on each date the Trust files with the
Commission the Trust's required semi-annual financial statements, a
certificate of its treasurer or assistant treasurer in a form reasonably
satisfactory to you, describing the manner in which such financial
statements were prepared and confirming that such financial statements
have been prepared in conformity with the Rules and Regulations under the
Investment Company Act.
7. Conditions to Your Obligations as Distributor and Principal Underwriter.
-----------------------------------------------------------------------
Your obligations as distributor of the Shares of the Funds shall be
subject to the accuracy of the representations and warranties on the part
of the Trust contained herein as of the dates when made or deemed to have
been made, to the accuracy in all material respects of the statements made
in any certificates, letters or opinions delivered pursuant to the
provisions of Sections 6 or 7 of this Agreement, to the performance by the
Trust of its obligations hereunder and to the following additional
conditions:
(a) If filing of any Prospectus or SAI, or any amendment or supplement to any
Prospectus or SAI, or any other document is required pursuant to any
applicable provision of Rule 497, such Prospectus or SAI, or any such
amendment or supplement and other document will be filed in the manner and
within the time period required by the applicable provision of Rule 497;
and no order suspending the effectiveness of the amendment shall have been
issued and no proceedings for that purpose shall have been instituted or,
to the best knowledge of the Trust, threatened and the Trust shall have
complied with any request of the Commission for additional information (to
be included in the relevant Registration Statement, Prospectus, SAI or as
the Commission otherwise shall have requested).
-8-
<PAGE>
(b) At the Initial Acceptance Date with respect to each Fund, you shall have
received from counsel to the Distributors, if so requested, such opinion
or opinions, dated the Initial Acceptance Date, with respect to the
issuance and sale of the Shares, the relevant Registration Statement,
Prospectus and SAI and other related matters as you may reasonably
require, and the Trust shall have furnished to such counsel such documents
as they may request for the purpose of enabling them to pass upon such
matters. Each such opinion shall state that the Authorized Dealers may
rely on it.
(c) There shall not have been any change, or any development involving a
prospective change, in or affecting the Trust the effect of which in any
case is, in your good faith judgment, so material and adverse as to make
it impractical or inadvisable to proceed with the offering of Shares of
the Funds as contemplated by this Agreement.
(d) On or after the date hereof there shall not have occurred any of the
following: (i) a suspension or material limitation in trading in
securities generally on the New York Stock Exchange; (ii) a general
moratorium on commercial banking activities in New York declared by either
Federal or New York State authorities; (iii) the outbreak or escalation of
hostilities involving the United States or the declaration of a national
emergency or war if the effect of any such event specified in this Clause
(iii) in your judgment makes it impracticable or inadvisable to proceed
with the public offering or the delivery of the Shares of a Fund on the
terms and in the manner contemplated in any Prospectus.
(e) The Trust shall have furnished to you such further information,
certificates and documents as you may have reasonably requested.
If any of the conditions specified in this Section 7 shall not have been
fulfilled in all material respects when and as provided in this Agreement,
or if any of the opinions, certificates or letters mentioned above or
elsewhere in this Agreement shall not be in all material respects
reasonably satisfactory in form and substance to you, this Agreement and
all your obligations hereunder may be cancelled by you. In the event of
such cancellation, the Trust shall remain liable for the expenses set
forth in Section 8.
8. Expenses.
--------
(a) The Trust will pay (or will enter into arrangements providing that parties
other than you will pay) all fees and expenses:
(1) in connection with the preparation, setting in type and filing of the
Registration Statements (including Prospectuses and SAIs) under the
Securities Act or the Investment Company Act, or both, and any
amendments or supplements thereto that may be made from time to time;
(2) in connection with the registration and qualification of Shares of the
Funds for sale in the various jurisdictions in which it is determined
to be advisable to qualify such Shares of the Funds for sale
(including registering the Trust as a broker or dealer or any officer
of the Trust or other person as agent or salesman of the Trust in any
such jurisdictions);
(3) of preparing, setting in type, printing and mailing any notice, proxy
statement, report, Prospectus, SAI or other communication to
shareholders in their capacity as such;
(4) of preparing, setting in type, printing and mailing Prospectuses
annually, and any supplements thereto, to existing shareholders;
(5) in connection with the issue and transfer of Shares of the Funds
resulting from the
-9-
<PAGE>
acceptance by you of orders to purchase Shares of the Funds placed
with you by investors, including the expenses of printing and mailing
confirmations of such purchase orders and the expenses of printing and
mailing a Prospectus included with the confirmation of such orders
and, if requested by the purchaser, an SAI;
(6) of any issue taxes or any initial transfer taxes;
(7) of WATS (or equivalent) telephone lines other than the portion
allocated to you in this Section 8;
(8) of wiring funds in payment of Share purchases or in satisfaction of
redemption or repurchase requests, unless such expenses are paid for
by the investor or shareholder who initiates the transaction;
(9) of the cost of printing and postage of business reply envelopes sent
to shareholders;
(10) of one of more CRT terminals connected with the computer facilities of
the Transfer Agent other than the portion allocated to you in this
Section 8;
(11) permitted to be paid or assumed by any Fund or Funds or any Class
thereof pursuant to (a) a Rule 12b-1 Plan adopted by such Fund or
Funds in conformity with the requirements of Rule 12b-1 under the
Investment Company Act ("Rule 12b-1") or any successor rule,
----------
notwithstanding any other provision to the contrary herein or (b) any
other plan adopted by a Fund providing for account administration or
shareholder liaison services (a "Service Plan");
(12) of the expense of setting in type, printing and postage of any
periodic newsletter to shareholders other than the portion allocated
to you in this Section 8; and
(13) of the salaries and overhead of persons employed by you as shareholder
representatives other than the portion allocated to you in this
Section 8.
(b) Except as provided in any Rule 12b-1 Plan or Service Plan, you shall pay or
arrange for the payment of all fees and expenses:
(1) of printing and distributing any Prospectuses or reports prepared for
your use in connection with the offering of Shares of the Funds to the
public;
(2) of preparing, setting in type, printing and mailing any other literature
used by you in connection with the offering of Shares of the Funds to
the public;
(3) of advertising in connection with the offering of Shares of the Funds to
the public;
(4) incurred in connection with your registration as a broker or dealer or
the registration or qualification of your officers, partners, directors,
agents or representatives under Federal and state laws;
(5) of that portion of WATS (or equivalent) telephone lines allocated to you
on the basis of use by investors (but not shareholders) who request
information or Prospectuses;
(6) of that portion of the expense of setting in type, printing and postage
of any periodic newsletter to shareholders attributable to promotional
material included in such newsletter at your
-10-
<PAGE>
request concerning investment companies other than the Trust or
concerning the Trust to the extent you are required to assume the
expense thereof pursuant to this Section 8, except such material which
is limited to information, such as listings of other investment
companies and their investment objectives, given in connection with the
exchange privilege as from time to time described in the Prospectuses;
(7) of that portion of the salaries and overhead of persons employed by you
as shareholder representatives attributable to the time spent by such
persons in responding to requests from investors, but not shareholders,
for information about the Trust;
(8) of any activity which is primarily intended to result in the sale of
Shares of any Class of a Fund, unless a 12b-1 Plan shall be in effect
which provides that shares of such Classes shall bear some or all of
such expenses, in which case such Class shall bear such expenses in
accordance with such Plan; and
(9) of that portion of one or more CRT terminals connected with the computer
facilities of the Transfer Agent attributable to your use of such
terminal(s) to gain access to such of the Transfer Agent's records as
also serve as your records.
Expenses which are to be allocated between you and the Trust shall be
allocated pursuant to reasonable procedures or formulae mutually agreed upon
from time to time, which procedures or formulae shall to the extent
practicable reflect studies of relevant empirical data.
9. Indemnification and Contribution.
--------------------------------
(a) The Trust will indemnify you and hold you harmless against any losses,
claims, damages or liabilities, to which you may become subject, under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon
an untrue statement or alleged untrue statement of a material fact contained
in any Preliminary Prospectus, Registration Statement, Prospectus, or SAI or
arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make
the statement therein not misleading, and will reimburse you for any legal
or other expenses reasonably incurred by you in connection with
investigating or defending any such action or claim; provided, however, that
-------- -------
the Trust shall not be liable in any such case to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made
in any Registration Statement, any Preliminary Prospectus, or any Prospectus
or SAI in reliance upon and in conformity with written information furnished
to the Trust by you expressly for use therein.
(b) You will indemnify and hold harmless the Trust against any losses, claims,
damages or liabilities to which the Trust may become subject, under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof), arise out of or are based upon
an untrue statement or alleged untrue statement of a material fact contained
in any Registration Statement, any Preliminary Prospectus, or any Prospectus
or SAI, or arise out of or are based upon the omission or alleged omission
to state therein a material fact required to be stated therein or necessary
to make the statements therein not misleading, in each case to the extent,
but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in any Registration
Statement, any Preliminary Prospectus, or any Prospectus or SAI in reliance
upon and in conformity with written information furnished to the Trust by
you expressly for use therein; and will reimburse the Trust for any legal or
other expenses reasonably incurred by the Trust in connection with
investigating or defending any such action or claim.
-11-
<PAGE>
(c) Promptly after receipt by an indemnified party under subsection (a) or (b)
above of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against the indemnifying
party under such subsection, notify the indemnifying party in writing of the
commencement thereof; but the omission so to notify the indemnifying party
shall not relieve it from any liability which it may have to any indemnified
party otherwise than under such subsection. In case any such action shall
be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof the indemnifying party shall
be entitled to participate therein and, to the extent that it shall wish,
jointly with any other indemnifying party similarly notified, to assume the
defense thereof, with counsel satisfactory to such indemnified party (who
shall not, except with the consent of the indemnified party, be counsel to
the indemnifying party), and, after notice from the indemnifying party to
such indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified party under such
subsection for any legal expenses of other counsel or any other expenses, in
each case subsequently incurred by such indemnified party, in connection
with the defense thereof other than reasonable costs of investigation.
(d) If the indemnification provided for in this Section 9 is unavailable to, or
insufficient to hold harmless, an indemnified party under subsection (a) or
(b) above in respect of any losses, claims, damages or liabilities (or
actions in respect thereof) referred to therein, then each indemnifying
party shall contribute to the amount paid or payable by such indemnified
party as a result of such losses, claims, damages or liabilities (or actions
in respect thereof) in such proportion as is appropriate to reflect the
relative benefits received by the Trust on the one hand and you on the other
from the offering of the Shares of the Fund or Funds in respect of which
such losses, claims, damages or liabilities (or actions in respect thereof)
arose. If, however, the allocation provided by the immediately preceding
sentence is not permitted by applicable law or if the indemnified party
failed to give the notice required under subsection (c) above, then each
indemnifying party shall contribute to such amount paid or payable by such
indemnified party in such proportion as is appropriate to reflect not only
such relative benefits but also the relative fault of the Trust on the one
hand and you on the other in connection with the statements or omissions
which resulted in such losses, claims, damages or liabilities (or actions in
respect thereof) as well as any other relative equitable considerations.
The relative benefits received by the Trust on the one hand and you on the
other shall be deemed to be in the same proportion as the total net proceeds
from the offering of the Shares of the relevant Funds (before deducting
expenses) received by the Trust bear to the total compensation received by
you in selling Shares of such Funds under this Agreement, including any
sales charge as set forth in the Prospectus. The relative fault shall be
determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the
Trust on the one hand or you on the other and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Trust and you agree that it would not be just
and equitable if the contributions pursuant to this subsection (d) were
determined by pro rata allocation or by any other method of allocation which
does not take account of the equitable considerations referred to above in
this subsection (d). The amount paid or payable by an indemnified party as
a result of the losses, claims, damages or liabilities (or actions in
respect thereof) referred to above in this subsection (d) shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or
claim. Notwithstanding the provisions of this subsection (d), you shall not
be required to contribute any amount in excess of the amount by which the
total price at which the Shares of the relevant Funds sold by you and
distributed to the public were offered to the public exceeds the amount of
any damages which you have otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.
-12-
<PAGE>
(e) The obligations of the Trust under this Section 9 shall be in addition to
any liability which the Trust may otherwise have and shall extend, upon the
same terms and conditions, to each person, if any, who controls you within
the meaning of the Securities Act; and your obligations under this Section 9
shall be in addition to any liability which you may otherwise have and shall
extend, upon the same terms and conditions, to each trustee or officer of
the Trust (including any person who, with his consent, is named in the
relevant Registration Statement as about to become a trustee of the Trust)
and to each person, if any, who controls the Trust within the meaning of the
Securities Act.
(f) It is understood, however, that nothing in this paragraph 9 shall protect
any indemnified party against, or entitle any indemnified party to
indemnification against, or contribution with respect to, any liability to
the Trust or its shareholders to which such indemnified party is subject, by
reason of its willful misfeasance, bad faith or gross negligence in the
performance of its duties, or by reason of any reckless disregard of its
obligations and duties, under this Agreement, or otherwise to an extent or
in a manner that is inconsistent with Section 17(i) of the Investment
Company Act.
10. Term.
----
(a) This Agreement shall commence on the date first set forth above and continue
in effect until June 30, 1998 and then for successive annual periods after
June 30, 1998, provided such continuance is specifically approved at least
annually by (i) the Trustees of the Trust or (ii) a vote of a majority (as
defined in the Investment Company Act) of the Fund's outstanding voting
securities, provided that in either event the continuance is also approved
by a vote of a majority of the Trustees of the Trust who are not interested
persons (as defined in the Investment Company Act) of the Trust or any party
to this Agreement, by vote cast in person at a meeting called for the
purpose of voting on such approval. The Trust authorizes, if and when you
so determine, you to assign to a third party any payments with respect to
one or more Classes of Shares that you are entitled to receive for your
services hereunder, including any payments of initial or deferred sales
charges or payments in accordance with a Rule 12b-1 or Service Plan so long
as such Plan is in effect, free and clear of any offset, defense or
counterclaim the Trust may have against you and except to the extent that
any change or modification after the date hereof of (x) the provisions of
the Investment Company Act, the Rules and Regulations thereunder or other
applicable law or (y) any interpretation of the Investment Company Act, the
Rules and Regulations thereunder or other applicable law shall restrict your
right to make such transfer free and clear of any offset, defense or
counterclaim.
(b) The sale of Shares of the Funds in accordance with the terms of this
Agreement shall be subject to termination or suspension in the absolute
discretion of the Trust, by notice given to you as set forth in Section 12
hereof.
(c) This Agreement will terminate automatically in the event of its assignment
(as defined in the Investment Company Act). In addition, this Agreement may
be terminated by the Trust at any time with respect to any Class of its
Shares, without the payment of any penalty, by vote of a majority of the
Trustees of the Trust who are not interested persons (as defined in the
Investment Company Act) of the Trust or by a vote of a majority of the
outstanding voting securities of such Class on 60 days' written notice.
11. Representation and Indemnities to Survive. The respective agreements,
-----------------------------------------
representations, warranties, indemnities and other statements of the Trust
and you set forth in or made pursuant to this Agreement will, to the extent
permitted by applicable law, remain in full force and effect, regardless of
any investigation made by or on behalf of you, any Authorized Dealer or the
Trust, or any of the controlling persons referred to in Section 9 hereof,
and will survive the offer of the Shares of the
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<PAGE>
Funds. The provisions of Section 8, 9 and 11 hereof and your right to
receive any contingent deferred sale charges shall, to the extent permitted
by applicable law, survive the termination or cancellation of this
Agreement.
12. Notices. All communications hereunder will be in writing and effective only
-------
on receipt, and, if sent to you, mailed, delivered or telegraphed and
confirmed to you at Goldman, Sachs & Co., 85 Broad Street, York, New York
10004, Attention: Registration Department (Distributors - Goldman Sachs
Funds) or, if sent to the Trust, mailed, delivered or telegraphed and
confirmed to it at Goldman Sachs Trust, 4900 Sears Tower, Chicago, Ill.
60606, Attention: Secretary.
13. Affiliates. The Trust recognizes that your partners, officers and employees
----------
may from time to time serve as directors, trustees, officers and employees
of corporations and business entities (including other investment
companies), and that you or your affiliates may enter into distribution or
other agreements with other corporations and business entities.
14. Successors. This Agreement will inure to the benefit of and be binding upon
----------
the parties hereto and their respective successors and, to the extent set
forth herein, each of the officers, trustees and controlling persons
referred to in Section 9 hereof, and no other person will have any right or
obligation hereunder.
15. Applicable Law. This Agreement will be governed by and construed in
--------------
accordance with the laws of the State of New York.
16. Miscellaneous. The captions in this Agreement are included for convenience
-------------
of reference only and in no way define or delimit any of the provisions
hereof or otherwise affect their construction or effect. This Agreement may
be executed simultaneously in two or more counterparts, each of which shall
be deemed an original, but all of which together shall constitute one and
the same instrument.
The name "Goldman Sachs Trust" is the designation of the Trustees for the
time being under a Declaration of Trust dated January 28, 1997, as amended
from time to time, and all persons dealing with the Trust must look solely
to the property of the Trust for the enforcement of any claims against the
Trust as neither the Trustees, officers, agents or shareholders assume any
personal liability for obligations entered into on behalf of the Trust. No
series of the Trust shall be liable for any claims against any other series
of the Trust.
-14-
<PAGE>
If the foregoing is in accordance with your understanding of our agreement,
please sign and return to us the enclosed duplicate hereof, whereupon this
letter and your acceptance shall represent a binding agreement between you and
the Trust, and, to the extent set forth herein, shall be for the benefit of each
Authorized Dealer.
Very truly yours,
GOLDMAN SACHS TRUST
By: /s/ Douglas C. Grip
------------------------------
Name: Douglas C. Grip
Title: President of the Trust
The foregoing Agreement is
hereby confirmed and accepted
as of the date first above
written.
/s/ David B. Ford
- ------------------------
(Goldman, Sachs & Co.)
-15-
<PAGE>
EXHIBIT A
---------
Series ("Funds") of GOLDMAN SACHS TRUST, a Delaware business trust (the "Trust")
- --------------------------------------------------------------------------------
GOLDMAN SACHS FIXED INCOME FUNDS:
--------------------------------
Goldman Sachs Adjustable Rate Government Fund
Goldman Sachs Core Fixed Income Fund
Goldman Sachs Global Income Fund
Goldman Sachs Government Income Fund
Goldman Sachs Municipal Income Fund
Goldman Sachs Short Duration Tax-Free Fund
Goldman Sachs Short Duration Government Fund
Goldman Sachs High Yield Fund
Goldman Sachs High Yield Municipal Fund
GOLDMAN SACHS EQUITY FUNDS:
--------------------------
Goldman Sachs Balanced Fund
Goldman Sachs CORE Large Cap Growth Fund
Goldman Sachs CORE U.S. Equity Fund
Goldman Sachs CORE Small Cap Equity Fund
Goldman Sachs CORE International Equity Fund
Goldman Sachs CORE Large Cap Value Fund
Goldman Sachs CORE Tax-Managed Equity Fund
Goldman Sachs Growth and Income Fund
Goldman Sachs Capital Growth Fund
Goldman Sachs International Equity Fund
Goldman Sachs Small Cap Value Fund
Goldman Sachs Asia Growth Fund
Goldman Sachs Emerging Markets Equity Fund
Goldman Sachs Mid Cap Value Fund
Goldman Sachs Real Estate Securities Fund
Goldman Sachs International Small Cap Fund
Goldman Sachs Japanese Equity Fund
Goldman Sachs European Equity Fund
Goldman Sachs Strategic Growth Fund
Goldman Sachs Growth Opportunities Fund
Goldman Sachs Internet Toll-Keeper Fund
Goldman Sachs Large Cap Value Fund
GOLDMAN SACHS ASSET ALLOCATION PORTFOLIOS
-----------------------------------------
Goldman Sachs Growth Strategy Portfolio
Goldman Sachs Aggressive Growth Strategy Portfolio
Goldman Sachs Balanced Strategy Portfolio
Goldman Sachs Growth and Income Strategy Portfolio
Goldman Sachs Conservative Strategy Portfolio
-16-
<PAGE>
GOLDMAN SACHS MONEY MARKET FUNDS:
--------------------------------
Goldman Sachs-Institutional Liquid Assets Portfolios:
----------------------------------------------------
Prime Obligations Portfolio
Government Portfolio
Treasury Obligations Portfolio
Federal Portfolio
Money Market Portfolio
Treasury Instruments Portfolio
Tax-Exempt Diversified Portfolio
Tax-Exempt California Portfolio
Tax-Exempt New York Portfolio
Financial Square Funds:
----------------------
Prime Obligations Fund
Government Fund
Treasury Obligations Fund
Money Market Fund
Tax-Free Money Market Fund
Federal Fund
Treasury Instruments Fund
Premium Money Market Fund
Municipal Money Market Fund
-17-
<PAGE>
Exhibit (g)(23)
- --------------------------------------------------------------------------------
January 12, 2000
State Street Bank and Trust Company
1776 Heritage Drive
North Quincy, MA 02171
Re: Goldman Sachs Trust; additional portfolio under the Goldman Sachs
Equity Portfolios, Inc. contract
Ladies and Gentlemen:
This is to advise you that Goldman Sachs Trust (the "Fund") has established a
new series of shares to be known as Goldman Sachs CORE Tax-Managed Equity Fund
(the "Portfolio"). In accordance with the Additional Funds provision of Section
17 of the Custodian Contract dated April 6, 1990, between Goldman Sachs Equity
Portfolios, Inc. and State Street Bank and Trust Company, as adopted by the Fund
pursuant to that certain letter agreement dated as of September 27, 1999 (the
"Contract"), the Fund hereby requests that you act as Custodian of the Portfolio
under the terms of the Contract.
Please indicate your acceptance of the foregoing by executing two copies of this
Letter Agreement, returning one to the Fund and retaining one copy for your
records.
GOLDMAN SACHS TRUST
By: /s/ John Perlowski
--------------------
Name: John Perlowski
Title: Treasurer
Agreed to this 17th day of February, 1999.
STATE STREET BANK AND TRUST COMPANY
By: /s/ Ronald E. Logue
--------------------
Name: Ronald E. Logue
Title: Vice Chairman
<PAGE>
Exhibit (g)(24)
- --------------------------------------------------------------------------------
January 6, 2000
State Street Bank and Trust Company
1776 Heritage Drive
North Quincy, MA 02171
Re: Goldman Sachs Trust; additional portfolio under the Goldman Sachs
Trust contract
Ladies and Gentlemen:
This is to advise you that Goldman Sachs Trust (the "Fund") has established a
new series of shares to be known as Goldman Sachs High Yield Municipal Fund (the
"Fund"). In accordance with the Additional Funds provision of Section 17 of the
Custodian Contract dated July 15, 1991, between Goldman Sachs Trust (the
predecessor to the Fund) and State Street Bank and Trust Company, as adopted by
the Fund pursuant to that certain letter agreement dated as of September 27,
1999 (the "Contract"), the Fund hereby requests that you act as Custodian of the
Fund under the terms of the Contract.
Please indicate your acceptance of the foregoing by executing two copies of this
Letter Agreement, returning one to the Fund and retaining one copy for your
records.
GOLDMAN SACHS TRUST
By: /s/ John Perlowski
--------------------
Name: John Perlowski
Title: Treasurer
Agreed to this 17th day of February, 1999.
STATE STREET BANK AND TRUST COMPANY
By: /s/ Ronald E. Logue
---------------------
Name: Ronald E. Logue
Title: Vice Chairman
<PAGE>
Exhibit (g)(25)
ADDITIONAL PORTFOLIO AGREEMENT
This Agreement, dated as of September 27, 1999, is between Goldman
Sachs Trust (the "Trust"), a business trust organized and existing under the
laws of the State of Delaware and having its principal place of business at 4900
Sears Tower, Chicago, Illinois 60606, and State Street Bank and Trust Company
(the "Custodian"), a Massachusetts trust company having its principal place of
business at 225 Franklin Street, Boston, Massachusetts 02110.
WITNESSETH:
WHEREAS, Goldman Sachs Trust and Goldman Sachs Money Market Trust,
Massachusetts business trusts and Goldman Sachs Equity Portfolios, Inc., a
Maryland corporation (each, a "Predecessor Entity") have each entered into
separate Custodian Contracts with the Custodian dated as of July 15, 1991,
December 27, 1978 and April 6, 1990, respectively (each, a "Contract", and
collectively, the "Contracts");
WHEREAS, pursuant to a reorganization on April 30, 1997, the
investment portfolios of each Predecessor Entity reorganized into corresponding
separate portfolios of the Trust;
WHEREAS, pursuant to three letter agreements between the Trust and the
Custodian, each dated as of September 27, 1999, each of the Contracts remains in
full force and effect with respect to such separate portfolios of the Trust; and
WHEREAS, each of the Contracts allows for the addition of additional
portfolios of investments, pursuant to mutual agreement between the Trust and
the Custodian;
NOW THEREFORE, in consideration of the mutual covenants and agreements
hereinafter contained, the parties hereto agree as follows:
That each of the portfolios listed on Appendix A hereto has been added
to the corresponding Contract listed on such Appendix A, effective as of the
corresponding date listed on such Appendix A.
IN WITNESS WHEREOF, each of the parties has caused this instrument to
be executed in its name and behalf by its duly authorized representative as of
the date first above written.
STATE STREET BANK AND TRUST GOLDMAN SACHS TRUST
COMPANY
By /s/ Ronald E. Logue By /s/ Michael Richman
------------------------- -------------------------
Its: Vice Chairman Its: Vice Chairman
<PAGE>
Exhibit (g)(26)
September 27, 1999
State Street Bank and Trust Company
One Heritage Drive
North Quincy, Massachusetts 02171
Attention: Gayle Coluccio
Re: Custodian Contracts between Goldman Sachs Money Market Trust (formerly
Institutional Liquid Assets) and State Street Bank and Trust Company,
dated December 27, 1978, as amended to date
Dear Ms. Coluccio:
This letter is to notify you of the reorganization of the Goldman Sachs
Funds which are parties to the above referenced agreement (the "Agreement").
On April 30, 1997, the investment portfolios (each a "Portfolio") of
Goldman Sachs Equity Portfolios ("GSEP"), a Maryland corporation, Goldman Sachs
Trust ("GST"), a Massachusetts business trust, and Goldman Sachs Money Market
Trust ("MMT"), also a Massachusetts business trust, reorganized into
corresponding separate series (each a "Successor Portfolio") of a newly
established Delaware trust, the Goldman Sachs Trust (the "Reorganization"). The
Reorganization was approved by the shareholders of GSEP, GST and MMT effective
at the close of business on April 30, 1997.
In the Reorganization, each Successor Portfolio received all the assets and
assumed all the liabilities of its corresponding Portfolio. As a result of the
Reorganization, each Successor Portfolio is carrying on the business of its
corresponding Portfolio and has the same investment adviser, other service
providers, fee and expense structure and investment objectives, policies and
restrictions as such corresponding Portfolio. Accordingly, each Successor
Portfolio is the same in all respects as its corresponding Portfolio, with the
exception of its state of organization.
Based on the foregoing, we intend that the Agreements will remain in full
force and effect with respect to those Successor Portfolios corresponding to
Portfolios previously covered by the Agreements. We also intend that any
recently created or future portfolios of new Goldman Sachs Trust may be covered
by the Agreements, subject to the policies and procedures set forth in the
Agreements concerning coverage of new portfolios. The Portfolios previously
covered under the Agreements and their corresponding Successor Portfolios are
set forth in Appendix A hereto.
<PAGE>
Please acknowledge your acceptance of and consent to the foregoing by
signing below in the space provided and returning in the enclosed self-addressed
stamped envelope.
Dated as of September 27, 1999.
Very truly yours,
GOLDMAN SACHS TRUST
By: /s/ Michael Richman
--------------------------
Michael Richman
Secretary
Acknowledged and Accepted:
STATE STREET BANK AND TRUST COMPANY
By: /s/ Ronald E. Logue
----------------------------------
Name: Ronald E. Logue
Title: Vice Chairman
Date: September 28, 1999
--------------------------------
<PAGE>
Exhibit (g)(27)
September 27, 1999
State Street Bank and Trust Company
One Heritage Drive
North Quincy, Massachusetts 02171
Attention: Gayle Coluccio
Re: Custodian Contract between Goldman Sachs Equity Portfolios, Inc.
(formerly GS Capital Growth Fund, Inc.)and State Street Bank and
Trust Company, dated April 6, 1990, as amended to date
Dear Ms. Coluccio:
This letter is to notify you of the reorganization of the Goldman Sachs
Funds which are parties to the above referenced agreement (the "Agreement").
On April 30, 1997, the investment portfolios (each a "Portfolio") of
Goldman Sachs Equity Portfolios, Inc. ("GSEP"), a Maryland corporation, Goldman
Sachs Trust ("GST"), a Massachusetts business trust, and Goldman Sachs Money
Market Trust ("MMT"), also a Massachusetts business trust, reorganized into
corresponding separate series (each a "Successor Portfolio") of a newly
established Delaware trust, the Goldman Sachs Trust (the "Reorganization"). The
Reorganization was approved by the shareholders of GSEP, GST and MMT effective
at the close of business on April 30,1997.
In the Reorganization, each Successor Portfolio received all the
assets and assumed all the liabilities of its corresponding Portfolio. As a
result of the Reorganization, each Successor Portfolio is carrying on the
business of its corresponding Portfolio and has the same investment adviser,
other service providers, fee and expense structure and investment objectives,
policies and restrictions as such corresponding Portfolio. Accordingly, each
Successor Portfolio is the same in all respects as its corresponding Portfolio,
with the exception of its state of organization.
Based on the foregoing, we intend that the Agreement will remain in full
force and effect with respect to those Successor Portfolios corresponding to
Portfolios previously covered by the Agreement. We also intend that any
recently created or future portfolios of new Goldman Sachs Trust may be covered
by the Agreement, subject to the policies and procedures set forth in the
Agreement concerning coverage of new portfolios. The Portfolios previously
covered under the Agreement and their corresponding Successor Portfolios are
set forth in Appendix A hereto.
<PAGE>
Please acknowledge your acceptance of and consent to the foregoing by
signing below in the space provided and returning in the enclosed self-addressed
stamped envelope.
Dated as of September 27, 1999.
Very truly yours,
GOLDMAN SACHS TRUST
By: /s/ Michael Richman
--------------------------
Michael Richman
Secretary
Acknowledged and Accepted:
STATE STREET BANK AND TRUST COMPANY
By: /s/ Ronald E. Logue
----------------------------------
Name: Ronald E. Logue
Title: Vice Chairman
Date: September 28, 1999
--------------------------------
<PAGE>
Exhibit (g)(28)
September 27, 1999
State Street Bank and Trust Company
One Heritage Drive
North Quincy, Massachusetts 02171
Attention: Gayle Coluccio
Re: Custodian Contract between Goldman Sachs Trust and State Street
Bank and Trust Company, dated July 15, 1991, as amended to
date
Dear Ms. Coluccio:
This letter is to notify you of the reorganization of the Goldman
Sachs Funds which are parties to the above referenced agreement (the
"Agreement").
On April 30, 1997, the investment portfolios (each a "Portfolio") of
Goldman Sachs Equity Portfolios, Inc. ("GSEP"), a Maryland corporation,
Goldman Sachs Trust ("GST"), a Massachusetts business trust, and Goldman Sachs
Money Market Trust ("MMT"), also a Massachusetts business trust, reorganized
into corresponding separate series (each a "Successor Portfolio") of a newly
established Delaware trust, the Goldman Sachs Trust (the "Reorganization"). The
Reorganization was approved by the shareholders of GSEP, GST and MMT effective
at the close of business on April 30, 1997.
In the Reorganization, each Successor Portfolio received all the
assets and assumed all the liabilities of its corresponding Portfolio. As a
result of the Reorganization, each Successor Portfolio is carrying on the
business of its corresponding Portfolio and has the same investment adviser,
other service providers, fee and expense structure and investment objectives,
policies and restrictions as such corresponding Portfolio. Accordingly, each
Successor Portfolio is the same in all respects as its corresponding Portfolio,
with the exception of its state of organization.
Based on the foregoing, we intend that the Agreement will remain in
full force and effect with respect to those Successor Portfolios corresponding
to Portfolios previously covered by the Agreement. We also intend that any
recently created or future portfolios of new Goldman Sachs Trust may be covered
by the Agreement, subject to the policies and procedures set forth in the
Agreement concerning coverage of new portfolios. The Portfolios previously
covered under the Agreement and their corresponding Successor Portfolios are
set forth in Appendix A hereto.
<PAGE>
Please acknowledge your acceptance of and consent to the foregoing by
signing below in the space provided and returning in the enclosed self-addressed
stamped envelope.
Dated as of September 27, 1999.
Very truly yours,
GOLDMAN SACHS TRUST
By: /s/ Michael Richman
--------------------------
Michael Richman
Secretary
Acknowledged and Accepted:
STATE STREET BANK AND TRUST COMPANY
By: /s/ Ronald E. Logue
----------------------------------
Name: Ronald E. Logue
Title: Vice Chairman
Date: September 28, 1999
--------------------------------
<PAGE>
Drinker Biddle & Reath LLP
One Logan Square
18th and Cherry Streets
Philadelphia, PA 19103
Phone: 215-988-2700
Facsimile:215-988-2757
Exhibit (i)(11)
January 31, 2000
Goldman Sachs Trust
4900 Sears Tower
Chicago, IL 60606
RE: Financial Square Prime Obligations Fund, Money Market Fund, Treasury
Obligations Fund, Treasury Instruments Fund, Government Fund, Federal Fund
and Tax-Free Money Market Fund of Goldman Sachs Trust
---------------------------------------------------------------------------
Ladies and Gentlemen:
We have acted as counsel for Goldman Sachs Trust, a Delaware business trust
(the "Trust"), in connection with the registration under the Securities Act of
1933 of a new class of shares of beneficial interest representing interests in
seven series, or funds, of the Trust. The seven series are the Financial Square
Prime Obligations Fund, Money Market Fund, Treasury Obligations Fund, Treasury
Instruments Fund, Government Fund, Federal Fund and Tax-Free Money Market Fund.
The new class of shares is FST Select Shares. The Trust is authorized to issue
an unlimited number of FST Select Shares of each series (hereinafter referred to
as the "Shares").
We have reviewed the Trust's Declaration of Trust, its by-laws, resolutions
adopted by its Board of Trustees, and have considered such other legal and
factual matters as we have deemed appropriate.
This opinion is based exclusively on the Delaware Business Trust Act and
the federal law of the United States of America.
Based on the foregoing, we are of the opinion that the Shares, when issued
against payment therefor as described in the Trust's prospectuses relating
thereto, will be legally issued, fully paid and non-assessable by the Trust, and
that the holders of the Shares will be entitled to the same limitation of
personal liability extended to stockholders of private corporations for profit
organized under the general corporation law of the State of Delaware (except
that we express no opinion as to such holders who are also trustees of the
Trust). Pursuant to Section 2 of Article VIII of the Declaration of Trust, the
Trustees have the power to cause shareholders, or shareholders of a particular
series or class, to pay certain custodian, transfer, servicing or similar agent
charges by setting off the same against declared but unpaid dividends or by
reducing share ownership (or by both means).
<PAGE>
Goldman Sachs Trust
January 31, 2000
Page 2
We hereby consent to the filing of this opinion with the Securities and
Exchange Commission as part of a Post-Effective Amendment to the Registration
Statement of the Trust. Expect as provided in this paragraph, the opinion set
forth above is expressed solely for the benefit of the addressee hereof in
connection with the matters contemplated hereby and may not be relied upon by,
or filed with, any other person or entity or for any other purpose without our
prior written consent.
Very truly yours,
/s/ DRINKER BIDDLE & REATH LLP
DRINKER BIDDLE & REATH LLP
GM/sdj
<PAGE>
Ex-99.(J)
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the use of our reports
for Goldman Sachs Trust on behalf of the Fixed Income Funds dated December 10,
1999 (and to all references to our firm) included in or made a part of
Post-Effective Amendment No. 62 and Amendment No. 64 to Registration Statement
File Nos. 33-17619 and 811-5349, respectively.
/s/ Arthur Andersen LLP
Boston, Massachusetts
February 14, 2000
<PAGE>
Ex-99.(J)(1)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the references to our firm on the cover of the Statement of
Additional Information and under the captions "Independent Public Accountants"
and "Financial Statements" in this Registration Statement (Form N-1A 33-17619)
of Goldman Sachs Trust.
ERNST & YOUNG LLP
New York, New York
February 22, 2000
